Investing.com -- Oil prices surged to settle higher on Thursday as Israel rejected an Hamas proposed ceasefire, reigniting fears that of widening of the conflict in the Middle East just as the U.S. continued to its retaliatory strikes and Houthi rebels launched fresh attacks in the Red Sea (NYSE:SE).
At 14:30 ET (19:30 GMT), the Brent oil futures expiring in April ticked up 3.2% to $76.22 a barrel, while West Texas Intermediate crude futures rose 3.4% to $81.87 per barrel.
Middle East tensions renew as Gaza ceasefire
Israel's Prime Minister Benjamin Netanyahu rejected a ceasefire deal proposed by Hamas, saying that talks with the latter were "nog going anywhere." The remarks dealt a blow to hopes of a ceasefire in Gaza and stoked concerns that the ongoing violence in the Middle is set to continue, keeping the risk of crude supply disruptions front and center.
Still, bigger gains in oil prices were held back by weak economic signals from top importer China, as well as mixed cues from U.S. inventory data.
Weak China inflation, mixed US inventories brushed aside
Chinese consumer inflation grew less than expected in January, official data showed on Thursday, while producer inflation remained in contraction for a 16th consecutive month.
The readings pointed to sustained economic weakness in the world’s largest oil importer, and factored into concerns over sluggish oil demand in the coming months.
China has remained a key pain point for oil markets, as a post-COVID economic recovery in the country largely failed to materialize over the past year.
U.S. inventory data also provided middling signals on supply and demand. While gasoline and distillate inventories saw modest draws in the week to February 2, overall U.S. inventories grew much more than expected as production recovered from a cold snap through January.
While record-high U.S. production has also served as a pain point for oil prices, the Energy Information Administration forecast a reduction in output through 2024, and that production will only retake record highs in early-2025. The forecast offered some support to oil prices this week.
But gains in crude were largely held back by a strong dollar, as markets began steadily pricing out the chances of early interest rate cuts by the Federal Reserve this year.
The central bank is now only expected to begin cutting rates by June 2024, with a chorus of Fed officials this week downplaying bets on early cuts.
Recent signs of resilience in the U.S. economy are also expected to give the Fed more headroom to keep rates higher for longer.