Oil prices stay near six-month highs on Mideast tensions

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By Noah Browning

LONDON (Reuters) -Oil prices were steady near six-month highs on Thursday after rising by a dollar a barrel in the prior session as investors braced for a potential attack on Israeli interests by Iran, OPEC’s third-largest oil producer.

futures were up 27 cents or 0.3% to $90.75 a barrel at 0632 GMT, while U.S. West Texas Intermediate crude futures gained 25 cents or 0.3% to $86.46 a barrel.

The Middle East is on alert for possible Iranian retaliation for a suspected Israeli air strike on Iran’s embassy in Syria.

Earlier this week, Israel and Hamas began a fresh round of negotiations in their more than six-month-old Gaza war but those discussions have yielded no agreement.

U.S. Secretary of State Antony Blinken has told Israeli Defence Minister Yoav Gallant that the United States will stand with Israel against any threats by Iran, the U.S. State Department said on Wednesday.

“Prices remain sensitive to geopolitical developments in the Middle East, with market participants pricing for the risks of supply disruptions if tensions were to drag for longer,” said Yeap Jun Rong, market strategist at IG.

“This aids to offset some risk-off sentiments overnight, as markets recalibrate their rate expectations to price out a June rate cut and for rates to be kept high for longer until September,” added Yeap, referring to U.S. interest rates.

Higher-for-longer rates could dampen economic growth and suppress demand for oil.

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.

© Reuters. FILE PHOTO: Oil tankers sail along Nakhodka Bay near the port city of Nakhodka, Russia August 12, 2022. REUTERS/Tatiana Meel/File Photo

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.

Oil traders will also be looking out for a monthly oil market report from the Organization of the Petroleum Exporting Countries (OPEC) due later on Thursday, and the International Energy Agency’s oil market report due on Friday.