Oil Prices Rise Amidst Middle East Unrest and Weak China Data
Oil Prices React to Rejection of Ceasefire Deal and Unrest in the Middle East
Oil prices saw a slight increase on Thursday following the rejection of an Israel-Hamas ceasefire deal, signaling continued unrest in the Middle East. However, gains were limited due to weak economic signals from China.
Middle East Conflict and Supply Disruptions Impact Oil Prices
Israeli Prime Minister Benjamin Netanyahu’s rejection of a ceasefire deal proposed by Hamas leaders dashed hopes for an end to the conflict, leading to potential supply disruptions in the Suez Canal. U.S.-led strikes against the Iran-aligned Yemeni Houthi group further added to the uncertainty in the region.
Oil Prices Experience Modest Rise Amidst Economic Signals
Oil prices for April delivery rose 2.1% to $80.89 a barrel, while Brent crude rose 2.1% to $75.47 per barrel. However, these gains were tempered by weak economic signals from China and mixed cues from U.S. inventory data.
Chinese Economic Weakness and Its Impact on Oil Demand
Chinese inflation grew less than expected in January, while industrial profits remained in contraction for the 16th consecutive month. These readings pointed to sustained economic weakness in the world’s largest oil importer, raising concerns over sluggish oil demand in the coming months.
Challenges Posed by U.S. Inventory Data and Production
U.S. inventory data provided mixed signals on supply and demand, with modest draws in crude and gasoline inventories, but an overall increase in U.S. oil production. The Energy Information Administration forecasted a reduction in output through 2024, offering some support to oil prices.
Market Response to Strong Dollar and Fed’s Rate Cut Expectations
Oil prices faced challenges from a strong dollar, as markets began pricing out the chances of early interest rate cuts by the Federal Reserve this year. The central bank is now expected to begin cutting rates by June 2024, with recent signs of resilience in the U.S. economy providing more headroom to keep rates higher for longer.
Despite geopolitical tensions and supply disruptions in the Middle East, oil prices were influenced by economic signals from China and U.S. inventory data. The market also responded to the dollar’s strength and the Federal Reserve’s rate cut expectations, shaping the trajectory of oil prices in the near future.
