Oil Steady as Middle East Risks Offset by Hawkish Fed Comments

(Bloomberg) -- Oil held a modest advance as the market weighed geopolitical risks in the Middle East against hawkish comments from the Federal Reserve. 

Brent crude traded near $78 a barrel after rising 0.9% on Monday in a session that saw it rebound from a three-week low. US benchmark West Texas Intermediate was below $73. The US vowed more strikes against Iranian forces and regional proxies, and Israeli Prime Minister Benjamin Netanyahu said absolute victory over Hamas was essential for his country’s security.

Financial markets continued to discount the chance of a Fed rate cut in March following comments from officials including Chair Jerome Powell, which spurred gains in the dollar. The US currency is near the highest since mid-November, making commodities less attractive for many buyers.

The attacks and threats of retaliation in the Middle East have increased the risk premium on crude, which has just had its worst week since October. That bearishness was driven by talks to pause the four-month Israel-Hamas war, signs of robust supply, and lackluster demand in top importer China.

Saudi Arabia, meanwhile, kept the price of its main crude grade steady for March as the Organization of the Petroleum Exporting Countries and its allies stick with production cutbacks to avert a surplus. The kingdom will need oil prices to average more than $90 a barrel this year to balance its budget, Fitch Ratings said in a note. OPEC+ is set to decide on whether to extend the curbs into the second quarter in early March.

“We expect the group to at least partially roll over voluntary cuts into the next quarter, which should keep the market in balance and ensure prices remain around $80 a barrel,” said Warren Patterson, head of commodities strategy for ING Groep NV. 

©2024 Bloomberg L.P.