Oil pump jacks are seen at the Vaca Muerta shale oil and gas deposit in the Patagonian province of Neuquen, Argentina, January 21, 2019.
Oil pump jacks are seen at the Vaca Muerta shale oil and gas deposit in the Patagonian province of Neuquen, Argentina, January 21, 2019. Reuters / Agustin Marcarian

Oil prices slumped 2% on Tuesday, after rising earlier in the session to seven-week highs, on news that the United States would ease some restrictions on Venezuela's government.

Prices deflated further following comments from Federal Reserve Chair Jerome Powell that there could be some economic pain involved to bring inflation down. The U.S. central bank will "keep pushing" to tighten U.S. monetary policy until it is clear that inflation is declining, he said.

"Some of those comments tempered buying enthusiasm on the oil side," said Phil Flynn, an analyst at Price Futures Group.

Brent crude fell $2.31, or 2%, to settle at $111.93 a barrel, and U.S. West Texas Intermediate (WTI) crude fell $1.8, or 1.6%, to settle at $112.40 a barrel.

Reuters reported that sources said U.S. President Joe Biden's administration will authorize as soon as Tuesday for U.S. oil company Chevron Corp to negotiate with Venezuelan President Nicolas Maduro's government, temporarily lifting a ban on such discussions.

Before that, Brent had risen to a session high of $115.69, the most since March 28. WTI had hit $115.56 per barrel, highest since March 24.

Bolstering those session highs was news that EU foreign ministers failed on Monday in their effort to pressure Hungary to lift its veto on the proposed oil embargo. But some diplomats now point to a May 30-31 summit as the moment for agreement on a phased ban on Russian oil.

Figures showed that in April, OPEC and allied nations including Russia, produced far below levels required under a deal to gradually ease record output cuts made during the worst of the pandemic in 2020.

This month, non-Russian deliveries into the Polish port of Gdansk hit the highest in at least seven years, as refiners in eastern Germany and Poland switched.

"Ultimately, this is a supply-side story," said Fawad Razaqzada, analyst at City Index. "Unless the OPEC and its allies ramp up production and fast, it is difficult to see how prices can go down meaningfully."

U.S. industry data on inventories were due later on Tuesday, with weekly reports expected to show a rise in crude stocks and a declines in inventories of gasoline. [EIA/S]