Oil settles higher on supply concerns in the Middle East

Oil prices settled higher on Friday, garnering support from tensions in the Middle East, but a strong dollar and U.S. inflation data quashed hopes that the Federal Reserve would cut interest rates soon, giving prices a ceiling.

Brent crude futures rose 49 cents to $89.50 a barrel. U.S. West Texas Intermediate crude futures closed 28 cents higher at $83.85 a barrel. Supply concerns supported prices as tensions continue in the Middle East.

An Israeli strike in Lebanon’s Beqaa region killed two members of a Lebanese militant group, Israel’s military said in a statement on Friday. Israel also stepped up air strikes on Rafah on Thursday, after saying it would evacuate civilians from the city in southern Gaza and launch an all-out assault, despite allies’ warnings that doing so could cause mass casualties.

Meanwhile, macroeconomic pressures capped gains after data released on Friday showed growing inflation.

In the twelve months through March, U.S. inflation rose 2.7% after an advance of 2.5% in February. The Fed has a 2% inflation target. Last month’s increase was broadly in line with economists’ expectations. The U.S. central bank is expected to leave rates unchanged at its meeting next week.

Asia spot LNG prices fall for first time in over two months

Asian spot liquefied natural gas (LNG) prices dropped slightly for the first time in more than two months last week over expectations of weak demand, amid easing concerns around supply due to tensions in the Middle East. The average LNG price for June delivery into north-east Asia settled at $10.20 per million British thermal units (mmBtu), falling off the over three month-highs it hit last week, industry sources estimated.

Asia LNG prices, which scaled a 15week high this month, have either been largely flat or increased week-over-week since March. The rally in LNG prices has curbed Asian buyers’ demand for spot cargoes, industry officials say. The delay in restarting Japan’s 1.1 gigawatts (GW) Higashidori nuclear reactor could drive demand for replacement fuels including natural gas.

Despite China’s factory activity in March growing for the first time since September, overall downstream gas demand remained weak, the analysts said.

Meanwhile, subdued feedgas volumes in the U.S. coupled with maintenance in Norway and cooler temperatures in Europe have kept prices elevated in the region, with EU natural gas storages witnessing net withdrawals for two consecutive days, analysts said.