Brent hovers around $90 as inflation concerns offset Middle East tensions

Global benchmark Brent hovered around $90 a barrel on Thursday as persistent inflation dampened rate cut optimism in the short term, but stayed near six-month highs as investors braced for a potential attack on Israeli interests by Iran. Brent crude futures were down 44 cents to $90.04 a barrel at 1321 GMT, while U.S. West Texas Intermediate crude futures lost 58 cents to $85.63 a barrel. It will be difficult to maintain Brent above $90 a barrel in the second half of the year without actual supply disruption associated with geopolitical events, said global energy strategist Vikas Dwivedi of Macquarie.

“As a result, we expect oil to turn bearish as the year progresses due to non-OPEC supply growth, a material amount of OPEC+ spare capacity re-entering the market, and the potential that continuing inflation softens demand.” Minutes from the U.S. Federal Reserve showed officials worried that progress on inflation might have stalled and a longer period of tight monetary policy would be needed to tame inflation in the world’s largest economy. Investors who had earlier expected a rate cut in June now see September as a likelier timing for the easing cycle to begin, following a third straight stronger-than-forecast reading on consumer inflation.

Meanwhile, in Europe, central bank officials on Thursday held borrowing costs at a record high as expected, but signalled the ECB may soon cut interest rates, even as investors increasingly questioned whether its U.S. counterpart will follow along. Higher-for-longer rates could dampen economic growth and suppress demand for oil. OPEC on Thursday stuck to its forecast for relatively strong growth in global oil demand in 2024, while saying there was a chance the world economy could do better than expected this year. The International Energy Agency will announce its expectations in its monthly report on Friday.

Meanwhile the Middle East is on alert for possible Iranian retaliation for a suspected Israeli air strike on Iran’s embassy in Syria on April 1. U.S. Secretary of State Antony Blinken has vowed that the United States will stand with Israel against any threats by Iran. Earlier this week, Israel and Hamas began a fresh round of negotiations in their more than six-month-old Gaza war but those talks have yielded no agreement.