Oil Prices Slip on Dual Concerns: U.S. Economic Slowdown and Middle East Tensions

In the early hours of Thursday’s trading, oil prices experienced a modest downturn, with worries over a potential slowdown in the U.S. economy and the prospect of delayed interest rate cuts outweighing concerns about escalating conflict in the Middle East, according to a report by Reuters.

Brent crude futures edged down by 9 cents to reach $86.95 a barrel at 0024 GMT, while U.S. West Texas Intermediate crude futures saw a decrease of 7 cents, settling at $82.74 a barrel. Both benchmarks had posted losses of less than 1% on the previous day.

Toshitaka Tazawa, an analyst at Fujitomi Securities Co Ltd, highlighted the nuanced dynamics at play, stating, “Tensions between Iran and Israel have eased, but Israeli attacks on Gaza are expected to worsen, and the risk of conflicts spreading to neighboring countries is underpinning oil prices.”

The conflict in the Middle East intensified as Israeli warplanes carried out airstrikes in the northern Gaza Strip for the second consecutive day on Wednesday, disrupting a period of relative calm. Additionally, Israel announced plans for a major offensive in Rafah, located in the southern region.

Meanwhile, concerns mounted over the state of the U.S. economy as April saw a slowdown in business activity to a four-month low, as indicated by S&P Global’s flash Composite PMI Output Index, tracking the manufacturing and services sectors.

The Federal Reserve’s apprehensions deepened in light of stronger-than-expected inflation and employment readings, indicating a challenge in meeting the central bank’s 2% target rate for inflation.

Market focus remains on forthcoming data regarding U.S. gross domestic product and March personal consumption expenditure, expected later this week, which will provide insights into the trajectory of the dollar and U.S. interest rates.

Wednesday saw the release of Energy Information Administration (EIA) data, which revealed an unexpected decline in U.S. crude oil inventories alongside a surge in exports. Gasoline stockpiles also decreased, albeit less than anticipated. Crude stocks plunged by 6.4 million barrels to 453.6 million barrels in the week ending April 19, in contrast to expectations for an 825,000-barrel rise as per a Reuters poll.

Despite the temporary uptick in oil prices spurred by the data, Tazawa cautioned that market optimism appeared short-lived, underscoring the lingering fragility amid broader economic and geopolitical uncertainties.