Apr 5 2024: Oil prices made a slight upward movement on Friday, retracting from the recent five-month highs earlier in the session, following robust labor data from the United States that tempered expectations of imminent interest rate cuts by the Federal Reserve.
As of 10:05 ET (14:05 GMT), West Texas Intermediate (WTI) crude futures remained mostly unchanged at $86.58 per barrel, while Brent oil futures expiring in June increased by 0.2% to $90.86 per barrel, retreating from levels last observed in mid-October.
Impressive March Nonfarm Payrolls
The latest data released on Friday revealed a significant increase of 303,000 jobs in March, surpassing the anticipated gain of 212,000 jobs.
This strong report has tempered speculations that the Federal Reserve might initiate interest rate cuts as early as June, a move that would likely stimulate economic activity and consequently boost demand for crude oil in the world’s largest economy.
Despite this, both crude benchmarks are poised for their most substantial weekly gains in two months due to escalating tensions in the Middle East, particularly amid heightened rhetoric between Israel and Iran.
Potential Israel-Iran Conflict Impact
A broader escalation of conflict in the Middle East could lead to additional disruptions in oil supply, potentially tightening oil markets in the upcoming months. Moreover, ongoing production cuts by the Organization of Petroleum Exporting Countries (OPEC) and its allies further contribute to expectations of a constrained market.
Positive Economic Indicators in China
Positive economic indicators from China, a major oil importer, have also bolstered optimism regarding increased oil imports in the country for the remainder of the year.
Strong Week for Oil Prices
Both Brent and WTI futures are set to record gains of around 4% this week, marking their strongest performance since early February.
The surge in oil prices was primarily driven by the possibility of Iran becoming involved in the conflict between Israel and Hamas, following Iran’s threat of retaliation against what it perceived as an Israeli attack on an Iranian embassy in Syria.
Geopolitical tensions in the Middle East have the potential to disrupt oil production in the region, especially if major producer Iran becomes entangled in the conflict.
Additionally, expectations of tighter global oil supplies were reinforced by Russia’s decision to reduce output in response to Ukrainian strikes on key refineries. Although US production remained at record levels last week, a notable decrease in US gasoline inventories indicated a pickup in demand from the largest fuel consumer globally.
