LONDON, April 30 (Reuters) - Oil steadied on Tuesday after the previous day's drop as Israel-Hamas talks offered hopes of a ceasefire even as Red Sea attacks continued, while investors awaited signals on U.S. interest rates ahead of a key meeting on Wednesday.
Brent crude futures rose 27 cents, or 0.3%, to $88.67 a barrel at 0830 GMT, while U.S. West Texas Intermediate crude futures gained 30 cents, or 0.4%, to $82.93 a barrel.
The front-month contract of both benchmarks lost more than 1% on Monday.
"The ongoing negotiation for a potential ceasefire between Israel and Hamas has led market participants to further unwind the geopolitical risk premium in oil prices, while the upcoming Fed meeting also drives some near-term reservations," said Yeap Jun Rong, market strategist at IG.
"Rates being kept at elevated levels for longer could trigger a further rise in the U.S. dollar, while also putting some risks to oil demand outlook."
Hamas negotiators left Cairo late on Monday to consult with the group's leadership after talks with Qatari and Egyptian mediators on a response to a phased truce proposal that Israel presented over the weekend.
The delegation was expected to report back within two days, two Egyptian security sources said.
"The market will need a deal to be actually clinched in order to resume a sell-off in crude," Vandana Hari, founder of oil market analysis provider Vanda Insights, said.
Continued attacks by Yemen's Houthis on maritime traffic south of the key Suez Canal trading route have kept a floor under oil prices and could prompt higher risk premiums if players anticipate crude supply disruptions.
On the economic front, investors are on watch this week for the U.S. Federal Reserve's May 1 policy review, with stubborn inflation pushing out market expectations for any rate cuts, which could bolster the U.S. dollar and hamper oil demand.
Some investors are cautiously pricing a higher probability that the Fed could hike interest rates by a quarter percentage point this year and next as inflation and the labour market remain resilient.
Additionally, concerns over demand have weighed on sentiment, ANZ analysts said in a research note, as premiums for diesel and heating oil over crude oil have fallen to their lowest in months.
Additional reporting by Georgina McCartney and Emily Chow; Editing by Sonali Paul and Jan Harvey
Source: Reuters