The West Texas Intermediate contract for April surged 87 cents, marking a 1.13% increase, to settle at $77.91 a barrel, while April Brent futures climbed 69 cents, representing a 0.84% rise, to settle at $83.03 a barrel. This uptick in crude oil futures came in response to signals from Federal Reserve officials suggesting that interest rates have likely plateaued.
During the central bank’s January meeting, Federal Reserve officials reached a consensus that interest rates have likely reached their peak, as revealed in minutes from the proceeding released on Wednesday. Furthermore, they generally agreed that any rate cuts should be postponed until they are more confident in controlling inflation.
The market’s expectations regarding the timing of rate reductions by the Fed have been pushed back due to persistent inflationary pressures in the United States. As a result, the first rate cut is now anticipated in June, compared to the previous expectations of March or May. Lower interest rates typically stimulate economic growth, thereby boosting demand for crude oil.
On Tuesday, both U.S. crude and the global benchmark experienced a decline of over 1% as traders opted to take profits following the oil market’s rally last week amid heightened tensions in the Middle East.
Analyst John Evans from oil broker PVM observed that the correction in oil prices on Tuesday was driven by a lack of further conflict news from key geopolitical hotspots, prompting markets to focus on broader macroeconomic concerns.
Tensions in the Middle East persisted throughout the week, with recent events including Israeli airstrikes against Hezbollah in Lebanon, Houthi militants targeting another cargo vessel on Monday, and Iran accusing Israel of orchestrating explosions that damaged a natural gas pipeline in the Islamic Republic on February 14.
White House Middle East envoy Brett McGurk is scheduled to travel to Cairo on Wednesday to continue discussions on a temporary cease-fire in Gaza, contingent upon Hamas releasing hostages. The Biden administration aims to secure a cease-fire before the start of Ramadan, which commences on March 10 after sunset.
Amid these developments, the U.S. has cautioned Israel against initiating a ground invasion of the southern Gaza city of Rafah without a credible plan to protect civilians. Israeli war Cabinet member Benny Gantz asserted on Sunday that Israel would advance into Rafah if Hamas failed to release the remaining hostages before Ramadan.
