Oil prices rise on Middle East tensions, central banks pivots

Investing.com -- Oil prices rose Thursday, retaining support from concerns about the disruptions of supplies from the Middle East as well as the idea that major central banks are turning towards easing monetary policy.

By 09:25 ET (14.25 GMT), the U.S. crude futures traded 0.5% higher at $76.25 a barrel and the Brent contract climbed 0.5% to $80.97 a barrel.

Major central banks pivot towards rate cuts

The Fed kept interest rates unchanged on Wednesday, as widely expected, and Chair Jerome Powell poured cold water on the idea that a cut could come as soon as March, its next meeting.

While this disappointed traders looking for an early rate cut to stimulate economic activity in the world’s largest economy, and biggest consumer of energy, Powell did indicate that rates had peaked and would move lower in coming months if inflation continued to fall.

Data released earlier Thursday showed that the labor market is steadily easing, as initial claims for state unemployment benefits increased 9,000 to a seasonally adjusted 224,000 for the week ended Jan. 27.

This was more than expected, and could help to curb wage inflation.

Elsewhere, the Bank of England kept interest rates at a nearly 16-year high earlier Thursday, but softened its stance about the possibility of cutting them as one of its policymakers cast the first vote for a reduction in borrowing costs since 2020.

Also, inflation in the eurozone eased last month, falling to 2.8% in January on an annual basis from 2.9% in December, inching towards the ECB's own 2% target.

This all suggests that these major central banks are increasingly pivoting towards lower interest rates this year.

Middle East situation remains tense

The crude market remains supported by the tense situation in the Middle East, and the potential that supplies from the important oil-rich region could be further disrupted.

The U.S. has vowed to take "all necessary actions" to defend its troops following a deadly drone attack in Jordan, blaming Iran for backing it militrants it deems guilty of the act.

"The energy market remains on edge as it waits for a U.S. response to the drone attack on American troops in Jordan," ANZ Research said in a note.

No change at OPEC+ meeting

The Organization of Petroleum Exporting Countries and allies, known as OPEC+, held a meeting earlier Thursday, the first major meeting of 2024, but there was limited price impact after the group left production policy changes off its agenda..

Underwhelming production cuts from the OPEC+ in late-2023 were a key point of contention for oil prices, as the move pointed to less tight markets in 2024 than initially expected.

The cartel also now appears to have limited headroom to cut production further and support oil prices.

Staying on the supply front, data released Wednesday showed an unexpected build in U.S. oil inventories of just over one million barrels last week.

“The unexpected build in the stocks could be largely attributed to the slowing refinery operations due to lingering winter storm outages and planned refinery maintenance,” said analysts at ING, in a note.

The Energy Information Administration data also indicated that U.S. production was recovering from the cold snap earlier in January, which had disrupted output in several parts of the country, and was seen rising back to record levels in the prior week.

(Ambar Warrick contributed to this article.)

This article first appeared in Investing.com