Oil prices surged in Asian trading amid mounting uncertainty surrounding the potential for a ceasefire between Israel and Hamas, particularly following an Israeli airstrike on Rafah in Southern Gaza.
Continuing their upward trend from the previous week's lows, oil prices witnessed a recovery amidst concerns regarding sluggish demand and relatively relaxed supply conditions. However, the recent Israeli strike on Rafah injected a sense of risk back into oil markets, causing prices to climb.
Brent oil futures set to expire in July advanced by 0.5% to reach $83.73 per barrel, while West Texas Intermediate crude futures rose by 0.6% to $78.56 a barrel by 20:52 ET (00:52 GMT).
Despite reports indicating that Hamas had accepted a proposal for a ceasefire in Gaza from Egyptian mediators, Israel rejected the terms, opting to continue its military operations in Rafah. Additionally, Israel urged civilians in Rafah to evacuate certain areas and restricted access to a crucial humanitarian aid corridor into Gaza.
Although Israel appeared to be gearing up for ceasefire discussions later on, the recent escalation in military activities signified limited progress towards a resolution.
This development prompted traders to incorporate a heightened risk premium into crude markets, reflecting concerns that ongoing geopolitical tensions in the Middle East could disrupt oil supplies from the region.
Oil prices also received support from a weakening U.S. dollar, as disappointing nonfarm payrolls data reignited speculation about potential interest rate cuts by the Federal Reserve.
Several Fed officials stated on Monday that while the central bank might eventually implement rate cuts, it required further evidence that inflationary pressures were easing. Nevertheless, recent inflation data suggested that price levels remained stubborn.
Despite the uncertainty, markets were pricing in a 48% probability of the Fed implementing rate cuts in September. The prospect of lower interest rates not only bolstered crude prices by weakening the dollar but also contributed to an improved demand outlook for oil throughout the year.
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