Oil prices rose in Asian trade on Thursday as concerns over Middle Eastern supplies persisted amid increasing military action in the Red Sea, while anticipation of an OPEC+ meeting also kept traders cautious.
Markets were also digesting the prospect of higher-for-longer U.S. interest rates, after the Federal Reserve shot down expectations for a March rate cut.
The U.S. targeted several unmanned drones in Western Yemen that were being prepared for launch, media reports said, with the move coming just a day after a deadly drone strike against a U.S. base in Jordan.
The strike pointed to little de-escalation in the Middle East conflict, which has disrupted shipping routes through the Red Sea and fueled fears of delayed oil deliveries in Europe and Asia.
Concerns over supply disruptions were a key point of support for oil prices in January, helping them break three straight months of losses.
Brent oil futures expiring in April rose 0.6% to $81.03 a barrel, while West Texas Intermediate crude futures rose 0.6% to 76.18 a barrel by 20:34 ET (01:34 GMT).
Both contracts rose between 4% and 5% in January.
Rate-cut uncertainty, China weakness weigh on crude
Any major rebound in oil prices was held back by strength in the dollar, after the Fed said it was in no hurry to begin trimming interest rates.
While Fed Chair Jerome Powell flagged persistent resilience in the U.S. economy, the prospect of higher-for-longer interest rates still bodes poorly for demand in the world’s largest fuel consumer.
The dollar rebounded after Powell’s comments, weighing on oil prices.
Weak economic signals from China also factored into concerns over slowing demand in the world’s largest oil importer.
Official purchasing managers index data for January showed manufacturing activity remained in contraction, pointing to little improvement in a sluggish economic recovery.
On the supply front, data showing an unexpected build in U.S. oil inventories also indicated that U.S. production was recovering from a cold snap earlier in January, which had disrupted output in several parts of the country. U.S. domestic oil production was also seen rising back to record levels in the prior week.
OPEC+ meeting on tap, no changes expected
The Organization of Petroleum Exporting Countries and allies (OPEC+) is set to hold a meeting of the Joint Ministerial Monitoring Committee later in the day- the bloc’s first major meeting of 2024.
But Reuters reported that the meeting is unlikely to result in any changes to production.
Underwhelming production cuts from OPEC+ in late 2023 were a key point of contention for oil prices, as the move pointed to less tight markets in 2024 than initially expected.
The cartel also now appears to have limited headroom to cut production further and support oil prices.
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