Oil dips 1% on Mideast ceasefire, US inflation woes

29 Apr 2024 , 10:38 AM

As fears of a wider Middle East conflict were allayed by Israel-Hamas peace negotiations in Cairo, and as U.S. inflation data further cast doubt on the likelihood of interest rate cuts anytime soon, prices dipped in early Asian trading on Monday, wiping out gains from Friday.

Brent crude futures ticked back up to $88.55 a barrel after falling as much as $1, or 1.1%, to $88.50. At $83.01 per barrel, West Texas Intermediate (WTI) futures were down 84 cents, or 1%.

The lackluster beginning on Monday was partly caused by geopolitical tensions being calmed by increased efforts to mediate a ceasefire between Israel and Hamas. A Hamas spokesman informed Reuters that a delegation from Hamas will be in Cairo on Monday to hold peace negotiations.

Israel’s foreign minister stated on Saturday that if a compromise is reached that includes the return of Israeli hostages, an intended incursion into Rafah, where over a million displaced Palestinians are seeking shelter, may be postponed.

Israel has consented to hear American concerns on the possible invasion’s humanitarian consequences, according to a White House spokeswoman.

Additionally, the markets are awaiting the U.S. Federal Reserve’s policy review on May 1.

According to figures released on Friday, U.S. inflation increased 2.7% in the year ending in March, exceeding the Federal Reserve’s 2% objective. Reduced inflation would have made interest rate reduction more likely, which would have boosted demand for oil and economic expansion.

The expectation of higher interest rates for a longer period of time supported the dollar. For holders of foreign currencies, oil becomes more expensive due to a rising dollar.

China’s industrial profit growth slowed down in March, according to official data released on Saturday. This is the latest indication of weak domestic demand in the second-largest economy in the world, which further clouds the picture for oil consumption.

Compared to a 10.2% increase in the first two months of the year, the cumulative earnings of China’s industrial enterprises increased 4.3% to 1.5 trillion yuan ($207.0 billion) in the first quarter.

However, if China’s PMI index and U.S. inventory statistics indicate improvement this week, oil prices may rise once more.

Due to worries about supply interruptions resulting from events in the Middle East, Brent ended the day Friday up 49 cents and WTI up 28 cents.

Possible supply interruptions from Ukranian drone strikes on the Ilsky and Slavyansk oil refineries in Russia’s Krasnodar area over the weekend were dismissed by the market. Following the incident, a plant executive stated that the Slavyansk refinery was forced to halt some of its activities.

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