The price of gas is displayed at a gas station in Miami, Florida, on Jan. 23, 2023.
Joe Raedle | Getty Images
Crude oil futures fell Thursday as worries about inflation overshadowed fears of a potential Iranian strike on Israel for the moment.
The West Texas Intermediate contract for May delivery lost $1.19, or 1.38%, to settle $85.02 a barrel. The June Brent futures contract fell 74 cents, or 0.82%, to settle at $89.74 a barrel.
Oil prices rose more than 1% Wednesday after Bloomberg News reported that the U.S. and its allies see an Iranian strike against Israel as imminent. Tehran has threatened retaliation against Israel over the destruction of its consulate in Damascus, Syria in a missile strike.
But the geopolitical risk that lifted prices in the previous session pulled back on Thursday as the attack has not materialized yet, according to Phil Flynn, senior market analyst at the Price Futures Group.
“The market is really breathing a sigh of relief that the attack isn’t going to happen overnight,” Flynn said. “Right now the markets waiting for the other shoe to drop,” he said.
U.S. crude and the global benchmark are down about 1.8% and 1.4%, respectively, this week as the recently rally on geopolitical tensions has cooled slightly. Manish Raj, managing director of Velandera Energy Partners, said traders have a thick skin when it comes to geopolitics.
“Traders are discounting war risks until they see soldiers marching or shots fired,” Raj said.
Futures also dipped Thursday as inflation fears also haunt the market after a hotter-than-expected consumer price index reading for March. A measure of wholesale prices in March, released Thursday, was lower than expected, but on a 12-month basis, the gauge of producer prices climbed 2.1%, which was the biggest jump it has logged since April 2023. The increase suggests inflation could stay elevated.
“Oil’s move today is primarily in sympathy with inflation risk, which threatens to dampen demand,” Raj said.
The Federal Reserve is now expected to start reducing interest rates in September, much later than originally forecast, with only two cuts now penciled in for the year, according to the CME FedWatch Tool.
Lower interest rates typically stimulate economic growth, which fuels crude oil demand. Stubborn inflation is also raising questions about whether the U.S. economy will clinch a soft landing this year.
Flynn said $85 for U.S. crude oil is an important psychological support level and any bad news could turn into a larger correction with WTI potentially pulling back to $83 or even $80 a barrel.
“On the other hand, if the market hangs in there and we’re going into the weekend with more geopolitical risk, there’s still a lot of upside,” Flynn said.
