The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas, U.S., November 22, 2019.
Angus Mordant | Reuters
Oil futures held steady Tuesday despite stubborn inflation in the U.S. that dragged the stock market lower.
The West Texas Intermediate contract for March was last up 12 cents, or 0.16%, to trade at $77.04 a barrel. The Brent contract for April traded at $82.03 a barrel, up 4 cents or 0.05%.
Oil clung to small gains despite inflation rising more than expected in January. The consumer price index rose 3.1% on an annual basis compared to the 2.9% that was expected.
The market is no longer banking on the Federal Reserve lowering interest rates in May, according to the CME FedWatch Tool. Lower interest rates typically drive economic growth which fuels oil demand.
U.S. crude and the global benchmark settled largely flat on Monday after rallying more than 6% last week as the war in Gaza raged on, highlighting an ongoing risk to crude supplies if the conflict spreads further.
WTI has struggled to break out of range of about $68 to $78 a barrel amid uncertainty over war in the Middle East and an unclear supply and demand outlook for the year.
WTI and Brent are up 7.7% and 6.6% respectively for the year, however.
“Oil prices have been numbed into submission by what has transpired, or not, in the Middle East,” John Evans, an analyst with the oil broker PVM, told clients in a note.
“All flow charts of consequence can immediately be undone by an untoward act, missile or sudden peace agreement and crude prices will move $10/barrel,” Evans wrote.
OPEC expects a tight crude market this year with demand forecast to grow by 2.2 million barrels per day, while production outside the cartel is expected to rise by 1.2 million barrels per day. That would imply a supply deficit this year unless OPEC reverses its production cuts.
But the head of the International Energy Agency told Bloomberg News that oil markets should remain “comfortable” this year barring more geopolitical turmoil or extreme weather.
Consumption will rise by 1.2 to 1.3 million barrels per day but production in the U.S., Brazil, Canada and Guyana will match the demand, IEA chief Fatih Birol told Bloomberg.
In an attempt to contain the Mideast conflict, President Joe Biden dispatched CIA Director William Burns to Cairo for talks on a temporary cease-fire in Gaza in exchange for Hamas releasing hostages and Israel freeing Palestinian prisoners.
Burns’ arrival in the Middle East comes as the push for a truce faltered last week after Israeli Prime Minster Benjamin Netanyahu rejected Hamas’ proposed terms for a pause in the fighting.
Netanyahu has vowed to press on with Israel’s offensive in Gaza and push into the southern city of Rafah on Egypt’s border, raising tensions with Cairo.
The war in Gaza has pulled the U.S. and Iran closer to a direct confrontation, one which geopolitical and oil market analysts worry will limit supplies in the event of any disruption in the Strait of Hormuz.