Oil Prices Decline Slightly Amid Positive Week Driven by Middle East Tensions

Oil prices experienced a slight decline in early Asian trading on Friday, as stronger-than-expected inflation data from the U.S. raised concerns about the potential pace of interest rate reductions in the coming months.

Despite the dip, prices were on track for a second consecutive week of gains, driven by ongoing worries regarding supply disruptions in the Middle East. Additionally, market participants were closely monitoring the effects of Hurricane Milton on U.S. oil production as the storm impacted Florida.

Brent oil futures for December dropped by 0.5% to $78.98 per barrel, while West Texas Intermediate crude futures decreased by 0.4% to $74.79 per barrel.

Impact of Strong CPI Data on Rate Cut Expectations

Recent robust consumer price index (CPI) inflation data in the U.S. has put pressure on oil prices, contributing to a stronger dollar. The hotter-than-anticipated inflation sparked apprehensions about a slower trajectory for interest rate cuts from the Federal Reserve.

The likelihood of U.S. interest rates remaining elevated for an extended period has raised fears about the impact on economic activity, which could, in turn, affect demand in the world’s largest fuel-consuming nation. Moreover, data indicating a larger-than-expected increase in U.S. inventories raised further concerns regarding slowing demand, although its direct impact on oil prices this week was limited.

In the U.S., attention was also focused on Hurricane Milton and its implications for oil production; however, the storm appeared to largely avoid major oil infrastructure in the Gulf of Mexico.

Oil on Track for Weekly Gains Amid Middle East Tensions

Brent and WTI futures were poised to gain between 1% and 1.8% this week, marking their second consecutive week of increases.

The oil market remains supported by concerns regarding the escalating conflict in the Middle East, particularly the ongoing hostilities between Israel and Hamas. Israeli forces have conducted significant strikes on Hezbollah targets in Lebanon, diminishing hopes for a ceasefire, even as reports suggest Hezbollah is seeking de-escalation.

Market participants are wary of the potential for the conflict to escalate, particularly if Israel conducts attacks on Iranian oil facilities, which could disrupt supplies in the region.

Additionally, there is attention on potential stimulus measures from China, the top oil importer. Following a less-than-satisfactory response to measures announced in late September, Beijing is expected to introduce further fiscal stimulus initiatives soon.