Oil prices rose on Thursday, extending their recent rebound as the U.S. dollar weakened, geopolitical tensions in the Middle East escalated, and U.S. inventory data showed a strong outlook for demand in the world’s biggest fuel consumer.
Brent crude futures rose 0.51 percent to $71.14 per barrel as of 6:24 GMT. Meanwhile, U.S. West Texas Intermediate crude gained 0.46 percent to $67.47.
U.S. distillate inventories fall
Oil prices received some support from U.S. inventory data, which showed that demand remained strong as distillate inventories fell more than expected by 2.8 million barrels. This uptick in prices comes after oil fell to over a three-year low in early March on demand concerns, U.S. trade tariffs and increasing supplies.
U.S. government data also showed on Wednesday that crude oil inventories recorded a bigger-than-expected build of 1.7 million barrels in the past week. However, distillate stocks saw an unexpectedly large decline, far outpacing builds in broader inventories and fuel stocks. This large decline raised hopes that fuel demand in the U.S. remained robust despite signs of a cooling economy.
Weaker dollar, rate cut hopes support oil prices
A weaker dollar also contributed to oil gains, with the dollar on a downtrend since the end of February. Markets were also digesting the Federal Reserve’s policy decision and outlook on the U.S. economy.
The Fed on Wednesday kept interest rates unchanged and signaled continued uncertainty over the U.S. economy, especially as policymakers attempted to foresee the impact of President Donald Trump’s trade tariffs. The central bank hiked its inflation forecast and lowered its expectations for U.S. economic growth, highlighting concerns over an economic slowdown in the coming months which may impact oil demand and prices.
However, oil investors remained hopeful with the Fed signaling an easing of interest rates by 50 basis points by the end of the year.
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Mideast tensions renewed
Global risk premiums rose after Israel launched a new operation on Wednesday in Gaza, breaking a ceasefire that lasted nearly two months. Additionally, the U.S. administration pledged last week to continue airstrikes against Yemen.
The escalating conflict has heightened concerns regarding potential disruptions to crucial shipping routes in the Red Sea, significantly impacting global oil markets. The Middle East region plays a vital role in global energy markets, and increased tensions can lead to apprehensions about possible disruptions.
Tensions in the Red Sea also rose while hostilities between Russia and Ukraine continued despite talks to achieve a 30-day ceasefire from attacking energy facilities. On Wednesday, Ukrainian President Volodymyr Zelenskiy said a halt to strikes on energy facilities in the war with Russia could come quickly, suggesting both sides were moving closer to a ceasefire that could lead to the easing of sanctions and the return of Russian supply to the market.
If U.S.-Russia peace talks on Ukraine are successful, Washington may ease certain sanctions on Russian energy exports, either by relaxing restrictions on oil trade or allowing more exemptions for buyers. This would enable Russia to boost crude and refined product shipments. Such prospects contribute to ongoing concerns about an oversupplied oil market, particularly as other factors, such as OPEC+ plans to unwind production cuts starting in April, are also expected to increase global crude supplies.
Elsewhere, optimism over more stimulus measures in China, the world’s biggest oil importer, also aided oil prices, although traders were waiting for more signs of an improving Chinese economy.
