Oil prices rise after Gaza ceasefire rejection; Weak China data limits gains

Investing.com-- Oil prices rose slightly on Thursday as the rejection of an Israel-Hamas ceasefire deal pointed to continued unrest in the Middle East, although weak economic signals from China put a lid on gains.   

Prices extended gains from Wednesday after Israeli Prime Minister Benjamin Netanyahu rejected a ceasefire deal proposed by Hamas leaders, dashing hopes for an end to the conflict that has now appeared to have spilled over into more Middle Eastern territories. 

U.S.-led forces continued with their strikes against the Iran-aligned Yemeni Houthi group, which in turn gave little indication of ceasing its attacks on vessels in the Red Sea. This heralded more potential supply disruptions in the Suez Canal, which is expected to disrupt Asian and European oil supplies. 

Brent oil futures expiring in April rose 0.3% to $79.47 a barrel, while West Texas Intermediate crude futures rose 0.4% to $74.19 a barrel by 20:59 ET (01:59 GMT). 

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. 

Markets weigh weak China inflation, mixed US inventories 

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.