Oil prices rise as Middle East disruptions persist; US payrolls awaited

Investing.com-- Oil prices rose in Asian trade on Friday as focus remained on supply disruptions in the Middle East, although gains were somewhat limited in anticipation of key U.S. payrolls data.

The ongoing conflict in the Red Sea saw some escalation this week as U.S.-led forces clashed with the Iran-aligned, Yemeni Houthi group. The Israel-Hamas also war raged on, now appearing to have spilled over into Lebanon. 

On the oil supply front, Syria halted production at its biggest oilfield due to protests in the region, taking about 300,000 barrels per day of supply offline. 

While concerns over some disruptions to Middle East supplies drove a recovery in crude this week, the rebound was cut short by data showing a massive build in U.S. oil product inventories in the final week of 2023. The reading indicated that demand remained weak in the world’s largest fuel consumer, while local markets were also well-supplied.

Brent oil futures expiring March rose 0.6% to $78.02 a barrel, while West Texas Intermediate crude futures rose 0.7% to $72.83 a barrel by 20:08 ET (01:08 GMT). Both contracts were set to end the week about 1% higher after logging bruising losses in 2023.

Dollar rebound weighs on oil ahead of payrolls data 

A rebound in the dollar also weighed on oil prices, as the greenback raced to over three-week highs on growing uncertainty over the Federal Reserve’s plans for interest rate cuts.

While the Fed signaled it will cut interest rates in 2024, it did not specify the timing or scale of the cuts. Traders were also seen slightly winding back expectations that the Fed will begin trimming rates by as soon as March 2024.

Nonfarm payrolls data for December, which is due later on Friday, is expected to offer more cues on the path of interest rates, given that labor market strength is a key consideration for the Fed when deciding on interest rates. 

Lower interest rates are expected to eventually stimulate economic activity and potentially drive up oil demand later in 2024. But until then, demand is expected to weaken as major global economies come under more pressure from high lending rates. 

US inventory data cuts short oil recovery 

U.S. gasoline and distillates inventories both grew more than 10 million barrels each in the week to December 29, official data showed on Thursday.

While overall inventories fell by about 5 million barrels, analysts said the draw was likely due to the U.S. filling a supply deficit from disruptions in the Middle East. 

The build in gasoline and distillates signaled that demand in the world’s largest fuel consumer remained languid, although the trend could also be attributed to weak travel trends during the winter season. 

U.S. production also stayed close to record highs, while exports increased.