By Georgina McCartney
HOUSTON (Reuters) -Oil prices rose on Friday, drawing support from concerns about tensions in the Middle East, but gains were capped by a rise in the dollar after U.S. inflation data dampened hopes the Federal Reserve would cut interest rates soon.
Brent crude futures were up 41 cents, or 0.46%, to $89.42 a barrel at 1308 ET (1708 GMT). U.S. West Texas Intermediate crude futures were up 32 cents, or 0.38%, to $83.89 a barrel.
The personal consumption expenditures (PCE) price index increased 0.3% last month, the Commerce Department’s Bureau of Economic Analysis said earlier on Friday, matching the increase in the previous month.
In the 12 months through March, U.S. inflation rose 2.7% after an advance of 2.5% in February. Last month’s increase was broadly in line with economists’ expectations.
The Fed has a 2% inflation target. The U.S. central bank is expected to leave rates unchanged at its policy meeting next week.
“The economic data this morning was enough for market participants to conclude that the Fed is not going to be forthcoming with interest rate cuts any time soon”, said John Kilduff, partner with Again Capital LLC.
“Geopolitical jitters in the market are what is keeping us aloft. Those two competing forces should keep us in check,” he added.
U.S. Treasury Secretary Janet Yellen told Reuters on Thursday that U.S. GDP growth for the first quarter could be revised higher, and inflation will ease after a clutch of “peculiar” factors held the economy to its weakest showing in nearly two years.
U.S. economic growth was likely stronger than suggested by the weaker quarterly data, she said. Oil prices have flip-flopped since her comments and the release of the inflation data on Friday.
Meanwhile, the dollar soared to a fresh 34-year high against the yen on Friday, bolstered in part by the U.S. inflation data.
“Dollar strength is helping to exert negative pressure today,” Kilduff said.
Supply concerns supported prices as tensions continue in the Middle East.
Israel’s Prime Minister Benjamin Netanyahu said any rulings by the International Criminal Court, which is investigating Hamas’ Oct. 7 attacks on Israel and Israel’s military assault on Gaza, would not affect Israel’s actions but would “set a dangerous precedent.”
“Under my leadership, Israel will never accept any attempt by the International Criminal Court in the Hague to undermine its basic right to defend itself,” Netanyahu said in a statement shared on Telegram.
Israel stepped up air strikes on Rafah after saying it would evacuate civilians from city in southern Gaza and launch an all-out assault despite allies’ warnings doing so could cause mass casualties.
“Israel is not afraid to come and support themselves on their own if they have to, people are watching to see what happens between Netanyahu and Biden,” said Tim Snyder, chief economist at Matador Economics.
“The geopolitical element is not over, the proxy battles going on right now will continue”, and this is still providing support and helping to offset the negative pressure from the inflationary data, Snyder added.
(Additional reporting by Noah Browning and Ahmad Ghaddar in London and Sudarshan Varadhan in Singapore; Editing by Jason Neely, Mark Potter, David Gregorio and Paul Simao)
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