Oil held modest gains as markets weighed geopolitical risks in the Middle East and hawkish comments from the Federal Reserve.
Brent crude rose 0.9% in Monday trading, rebounding from a three-week low and trading around $78 a barrel. West Texas Intermediate, the US benchmark, fell below $73. The United States has pledged further strikes against Iranian forces and regional proxies, and Israeli Prime Minister Benjamin Netanyahu has said an absolute victory over Hamas is essential to the country's security.
Financial markets continued to play down the possibility of the Fed cutting interest rates in March, following comments from officials including Chairman Jerome Powell, prompting the dollar to rise. The U.S. currency is near its highest since mid-November, making the commodity less attractive for many buyers.
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Oil prices just had their worst week since October, with threats of attacks and retaliation in the Middle East increasing risk premiums for oil. The weakness was driven by talks to suspend the four-month-long Israeli-Hamas war, signs of solid supply and weak demand from China, the country's biggest importer.
Meanwhile, Saudi Arabia kept prices for key crude grades unchanged for March as the Organization of the Petroleum Exporting Countries and its allies persisted with production cuts to avoid a surplus. Fitch Ratings said in a note that Saudi Arabia needs oil prices to average more than $90 a barrel this year to balance its budget. OPEC+ is expected to decide in early March whether to extend curbs into the second quarter.
Warren Patterson, head of commodity strategy at ING Group, said: “The group expects the voluntary cuts to be carried over, at least in part, into the next quarter, which will keep the market balanced and prices at 80 per barrel. It should stay around the dollar.”
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