Oil Makes More Minuscule Gains But Trading Is Plagued By "Inflation Anxiety"

Still, China remains a source of longer-term optimism: File Image/Pixabay

Still buoyed by the previous session's news that China's manufacturing activity grew last month, oil prices on Thursday rose again, albeit modestly, and were supported by hopes that the U.S. Federal Reserve may not impose onerous rate hikes that would ruin economic growth.

In the aftermath of China's manufacturing activity growing in February at the fastest pace in more than a decade, Brent settled up 44 cents at $84.75 per barrel, and West Texas Intermediate settled up 47 cents at $78.16 per barrel.

The cautious optimism about the Fed stemmed from Raphael Bostic, president of the Atlanta Federal Reserve, who said the bank should stick with "steady" quarter-point rate increases for the time being.

However, Fed officials are reportedly still debating whether strong data on inflation, jobs, and spending is merely a temporary phase or a growing trend that warrants even higher interest rates in order to slow price rises. 

John Kilduff, founding partner at Again Capital, said, "We're getting battered about by the Fed speak, but the Bostic comments seemed to help oil."

Perhaps as a reaction to the minuscule gains in oil prices this week, Tamas Varga, analyst at PVM, added, "Persistent inflation anxiety will act as a break on a prolonged rally in the immediate future."

Jim Ritterbusch, president of Ritterbusch and Associates, agreed: "[The] prospect of further U.S. rate hikes [is] likely to maintain U.S. dollar strength in providing a major upside limiter on oil pricing."

Still, Bloomberg on Thursday noted that a key market gauge points to a consensus emerging that demand will tighten the market with Brent's prompt time spread widening to the strongest since November.

On that score, Bart Melek, head of commodity strategy at TD Securities, said, "We've got oil a little bit higher here and to me, increasingly, we're looking hopeful toward recovery in China."

The narrow price band this month follows oil's smallest monthly range since the middle of 2021.