Oil prices higher on Fed comments on inflation, Middle East tensions

Oil prices began to rise on Friday as US Secretary of State Antony Blinken got ready to go to the Middle East in an attempt to stop the Israel-Gaza conflict from getting worse and as minutes from a Federal Reserve meeting indicated that inflation was under control.

At 07:39 GMT, US West Texas Intermediate crude futures increased by 43 cents, or 0.6 per cent, to $72.62, while Brent crude futures gained 32 cents, or 0.4 per cent, to $77.91 a barrel.

The benchmarks, which are expected to close the first week of the year higher, have almost recovered all of their losses from Thursday, when large weekly gains in petrol and distillate stocks caused prices to settle lower after a bumpy day.

While the minutes of the Fed meeting did not provide direct clues about when interest rate cuts might commence, the discussions signalled a growing sense that inflation is under control and rising concern about the risks that an “overly restrictive” monetary policy may hold for the economy.

Lower interest rates reduce consumer borrowing costs, which can boost economic growth and demand for oil.

Also adding to supply concerns were developments in the Middle East, where Israeli forces are planning a more targeted approach in the north and further pursuit of Hamas leaders in the south, its defence minister said on Thursday.

Aiming to help prevent the conflict from expanding, Blinken was set to travel on Thursday to the Middle East for a week of diplomacy, the State Department said.

US Energy Information Administration data showed gasoline stocks had last week registered their highest week-on-week rise in more than 30 years, while distillate products supplied, a proxy for demand, fell to its lowest level since 1999.

But the bearish data was offset by geopolitical concerns, hopes of economic recovery on potential easing of interest rates and lingering shipping concerns.

“There is still plenty of tension in the Middle East with Houthi rebels launching a sea drone in the Red Sea, a US airstrike in Baghdad,” ING analysts said in a report on Friday.