Oil settles higher on Middle East supply woes, US inflation data limits gains; Brent at $89/bbl

Crude oil prices settled higher in the previous session, garnering support from tensions in the Middle East, but a US strong dollar and US inflation data faded hopes that the US Federal Reserve would cut interest rates soon, limiting gains in crude prices. Nevertheless, oil supply concerns supported prices as tensions continue in the Middle East.

Brent crude futures settled up 49 cents, or 0.55 per cent, to $89.50 a barrel. US West Texas Intermediate crude futures settled up 28 cents, or 0.34 per cent, to $83.85 per barrel. Coming to domestic prices, crude oil futures settled 0.06 per cent lower at ₹6,995 per barrel on the multi commodity exchange (MCX).

Also Read: US Q1 GDP: At 1.6%, US economy grows at slowest pace in 2 years, misses estimates on sharp uptick in core inflation

What’s affecting crude oil prices?

-Benjamin Netanyahu, Israel’s prime minister, said that any rulings by the International Criminal Court, which is investigating Hamas’ attacks on Israel and the military assault, would not affect Israel’s next actions, but would ‘’set a dangerous precedent.”

-Israel’s military said that its air force struck in Lebanon’s West Beqaa District and killed a militant who advanced attacks against Israel. Israel stepped up air strikes on Rafah after saying it would evacuate civilians from city in southern Gaza and launch an all-out assault despite allies’ warnings that doing so could cause mass casualties.

-Analysts said that the geopolitical element is not over, the proxy battles going on right now will continue, and this is still providing support and helping to offset the negative pressure from the inflationary data.

-Macroeconomic pressures limited gains after data showed growing inflation. In the 12 months through March, US inflation rose 2.7 per cent after an advance of 2.5 per cent in February. The US Fed has a two per cent inflation target and is expected to leave rates unchanged at its policy meeting next week.

-Analysts said that the economic data this morning was enough for market participants to conclude that the Fed is not going to be forthcoming with interest rate cuts any time soon. Geopolitical jitters in the market are what is keeping us aloft. Those two competing forces should keep traders in check.

-US Treasury Secretary Janet Yellen told Reuters on Thursday that US gross domestic product (GDP) growth for the first quarter could be revised higher, and inflation will ease after a clutch of “peculiar” factors held the economy to its weakest showing in nearly two years.

-US economic growth was likely stronger than suggested by the weaker quarterly data, said Yellen. Oil prices have flip-flopped since Yellen’s comments and the release of the inflation data on Friday. US dollar soared to a fresh 34-year high against the yen on Friday, bolstered in part by the US inflation data.

Also Read: UK vs US: Which superpower will first cut interest rates in 2024? Here’s what inflation indicates

Where are prices headed?

Back home, analysts said that crude oil prices recovered from their lows in a highly volatile session and ignored the downbeat US GDP data. Decline in the US oil inventories and profit taking in the dollar index supported prices at lower levels, according to Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

WTI crude oil futures rose more than one per cent on Thursday, after treasury secretary downplayed concerns over a lower than expected GDP data. ‘’Recent EIA storage data showed that US crude inventories fell by 6.37 million barrels last week. The time spreads are pointing to a tighter market with Brent prompt spread backwardation widening to $1.3 per bbl,” said Kaynat Chainwala, Senior Manager-Commodity research, Kotak Securities.