By Giulia Petroni


Here's a look at what happened in oil markets in the week of April 15-19 and what the focus will be in the days to come.


OVERVIEW: There were big swings in oil futures this week as the market weighed the impact of Iran and Israel's attacks amid fears of a broader regional conflict in the Middle East. Crude futures jumped by more than 3% in early trading on Friday on news that Israel launched a retaliatory strike on Iran, but retreated shortly after on signs of de-escalation, hitting their lowest level in more than two weeks. Brent crude trades at around $87 a barrel, while West Texas Intermediate is at around $82 a barrel.


MACRO: The U.S. Federal Reserve indicated Tuesday that elevated inflation will likely delay interest-rate cuts this year after recent data pointed to strong economic activity. On Monday, the Commerce Department reported U.S. retail sales surged 0.7% in March compared with the previous month--the latest sign that consumers continue to spend.

The remarks highlight a quick turnaround in the rates outlook. According to many economists, the Fed is now more likely to start cutting rates in September rather than June, later than the European Central Bank and the Bank of England. The prospect of higher-for-longer interest rates is bearish for oil, given that lower rates typically stimulate the economy and boost demand for the commodity.


GEOPOLITICAL RISKS: Iran's missile and drone barrage against Israel last weekend was largely priced in by investors, but uncertainties around Israel's response kept the market on edge earlier this week amid fears of escalating tensions and potential disruptions to oil supplies.

Still, concerns were eased by expectations that, in the case of a price rally due to supply losses, the Organization of the Petroleum Exporting Countries would bring back some of this spare capacity into the market and that the U.S. could release crude from its strategic petroleum reserves.

Brent crude broke the $90 mark again early Friday on news that Israel retaliated against Iran overnight, but it soon began to fall back as more details emerged, revealing that the impact was only limited. The response was broadly muted in both countries, with Iran playing down the incident and saying that no major damage was reported and that nuclear facilities were unharmed. Neither country seems to be interested in starting a war, but the exchange of direct attacks significantly raised concerns over future escalations in the region, according to market watchers.


DEMAND: Global demand signals were slightly mixed this week. The latest weekly report from the U.S. Energy Information Administration was bearish for oil, as crude inventories rose by 2.7 million barrels, well above estimates of 600,000 barrels. Meanwhile though, China's gross domestic product rose 5.3% in the first quarter from a year earlier, beating expectations and sending positive signals to oil markets.


WHAT'S AHEAD: All eyes will be on the Middle East in the coming week, specifically on the latest developments between Israel and Iran following the attacks and on Israel's planned military operations in Gaza's southern city of Rafah amid international calls for a truce.

Traders will also focus on further potential sanctions on Iranian oil after the U.S. hit the country with a new wave of export controls and sanctions on its drone program.

At a macroeconomic level, the market awaits U.S. GDP data for the first quarter of the year due on Thursday and the PCE price index on Friday, a closely watched inflation gauge among Fed officials.


Write to Giulia Petroni at giulia.petroni@wsj.com


(END) Dow Jones Newswires

04-19-24 1243ET