Oil prices experienced a significant drop of over 2% on Thursday due to unsubstantiated reports of a ceasefire between Israel and Hamas and a power outage forcing a major U.S. refinery to shut down. Brent crude futures fell by $1.85, or 2.5%, settling at $78.70 a barrel, while U.S. West Texas Intermediate crude futures dropped by $2.03, or 2.7%, to $73.82.
Tensions in the Middle East have been contributing to increased oil prices, with ongoing attacks by Houthi forces on vessels in the Red Sea disrupting global oil trading. The Houthi group declared its intent to continue attacks on U.S. and British warships, citing self-defense.
BP Plc announced the shutdown of its 435,000 barrel-per-day Whiting, Indiana, refinery due to a power outage, further impacting oil prices. The refinery shutdown prompted visible flaring as products were burned off.
Earlier reports from OPEC+ indicated that the group would decide in March whether to extend voluntary oil production cuts in place for the first quarter. OPEC+ currently has 2.2 million barrels per day of voluntary oil production cuts, announced in November.
Oil prices had initially risen in response to Federal Reserve Chair Jerome Powell’s statement that interest rates had peaked and would move lower in the coming months, with expectations of falling inflation and sustained economic growth. However, Powell did not commit to rate cuts as early as the Fed’s March meeting, disappointing some investors.
The U.S. also released data showing faster-than-expected growth in worker productivity in the fourth quarter, contributing to the Fed’s fight against inflation. U.S. manufacturing stabilized in January, accompanied by a rebound in new orders, but inflation at the factory gate picked up.