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Oil prices increased in tandem with broader financial markets following the Federal Reserve’s recent suggestion that it may halt further interest rate hikes, offering support to a somewhat uncertain demand outlook. The global benchmark for crude oil, Brent for January, saw a rise to over $86 per barrel after declining approximately 5% over the preceding three sessions. The Federal Reserve refrained from raising borrowing costs for the second time on Wednesday and indicated that the recent uptick in longer-term Treasury yields has lessened the urgency for further rate hikes.
The Israel-Hamas conflict has so far remained contained. A limited number of refugees were allowed to escape the hostilities in Gaza and cross into Egypt. This humanitarian development resulted from a Qatar-mediated agreement involving Israel, Egypt, and Hamas. While US President Joe Biden has called for a temporary halt in fighting to secure the release of hostages in Gaza, he has not explicitly endorsed a complete cease-fire.
The reduction of oil prices due to fears that the conflict could expand across the broader region and disrupt oil supplies has yet to materialize. Consequently, oil options are now reflecting a lower risk of escalation, leading to a shift in focus towards signs of a potential weakening in the global demand outlook. Notably, manufacturing activity in China, the world’s largest crude oil importer, recently shifted back into contraction mode.
According to a report from ING analysts Ewa Manthey and Warren Patterson, “Brent has been trading firm this morning on positive economic sentiment after the US Fed continued to pause interest rate hikes.”
