Oil prices experienced a slight increase on Thursday following the rejection of a ceasefire deal between Israel and Hamas, signaling continued unrest in the Middle East. The rejection by Israeli Prime Minister Benjamin Netanyahu dashed hopes for a swift resolution to the conflict, which has expanded into additional Middle Eastern territories. U.S.-led forces continued strikes against the Iran-aligned Yemeni Houthi group, raising concerns about potential supply disruptions in the Suez Canal and disrupting oil supplies to Asia and Europe.
Brent oil futures for April delivery rose 0.3% to $79.47 a barrel, while West Texas Intermediate crude futures increased 0.4% to $74.19 a barrel.
However, gains in oil prices were tempered by weak economic signals from China, the world’s largest oil importer. Chinese consumer inflation in January grew less than expected, and producer inflation remained in contraction for the 16th consecutive month. These indicators pointed to sustained economic weakness, contributing to concerns about sluggish oil demand in the coming months. China’s struggle to achieve a robust post-COVID economic recovery has been a key challenge for oil markets.
In addition to China’s economic concerns, U.S. inventory data provided mixed signals on supply and demand. While gasoline and distillate inventories saw modest draws in the week ending February 2, overall U.S. inventories grew more than expected as production rebounded from a cold snap in January.
The strong dollar also limited gains in crude oil prices, as markets discounted the likelihood of early interest rate cuts by the Federal Reserve this year. The central bank is now expected to consider rate cuts no earlier than June 2024, with recent statements from Fed officials downplaying the possibility of early cuts. Resilience in the U.S. economy further supports the Fed’s decision to maintain higher interest rates for an extended period.