Oil Prices Rise after Rejection of Gaza Ceasefire; Weak China Data Limits Gains
Oil prices increased slightly on Thursday following the rejection of an Israel-Hamas ceasefire deal, indicating ongoing unrest in the Middle East. However, gains were limited due to weak economic signals from China.
Continued Unrest in the Middle East
Prices continued to rise after Israeli Prime Minister Benjamin Netanyahu turned down a ceasefire deal proposed by Hamas leaders. This decision dashed hopes for an end to the conflict, which has now expanded into more Middle Eastern territories.
Unrest in Yemen and Suez Canal Disruptions
U.S.-led forces persisted with their strikes against the Iran-aligned Yemeni Houthi group, indicating little intention of halting attacks on vessels in the Red Sea. This development suggested potential supply disruptions in the Suez Canal, expected to impact Asian and European oil supplies.
Price Movements
Oil prices saw a 2.1% increase, with crude oil reaching $80.89 a barrel and Brent rising to $75.47 per barrel by 10:29 ET (15:29 GMT).
Impact of Weak Economic Signals
However, the rise in oil prices was tempered by weak economic signals from China and mixed cues from U.S. inventory data.
China’s Economic Weakness
Chinese inflation grew less than expected in January, while industrial profits remained in contraction for the 16th consecutive month. These readings indicated sustained economic weakness in the world’s largest oil importer, raising concerns about sluggish oil demand in the coming months.
U.S. Inventory Data
While U.S. inventory data showed modest draws in the week to February 2, overall U.S. production exceeded expectations as it recovered from a cold snap through January.
Factors Affecting Oil Prices
Record-high U.S. production and a strong dollar have impacted oil prices. The Energy Information Administration forecast a reduction in output through 2024, offering some support to oil prices this week.
Impact of the Federal Reserve
Gains in crude oil were largely affected by a strong dollar, as markets began to discount the likelihood 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 leeway for the Fed to maintain higher rates for longer.
The rejection of an Israel-Hamas ceasefire deal led to a slight increase in oil prices on Thursday, hinting at continued unrest in the Middle East. However, weak economic signals from China and mixed cues from U.S. inventory data limited the gains. The Chinese economic data pointed to sustained weakness in the world’s largest oil importer, while U.S. inventory data provided middling signals on supply and demand. These factors, combined with the impact of the Federal Reserve’s policies, influenced the movement of oil prices this week.
