DTN Oil

WASHINGTON (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange reversed lower in afternoon trading Friday in reaction to a Bloomberg report suggesting U.S. and European allies are pressuring Israel to delay a ground offensive into Gaza to win time for negotiations aimed at releasing more than 200 hostages.

Palestinian militant group Hamas, a designated terrorist organization in the United States and European Union, released two American hostages on Friday, according to multiple reports. The move could open the door for more hostages to be released from captivity in Gaza in the coming days, with U.S. and European officials now urging Israel to delay its ground offensive.

Oil prices swung between large gains and losses this week as investors monitored Mideast tensions for signs of potential spillover into a larger regional conflict.

So far, oil production in the region remains unaffected but there is the risk that Iran could get involved on behalf of its subsidiary, Hamas, that sends prices sharply higher. Goldman Sachs estimates Iranian oil production could be 400,000 bpd lower next year as a result of recent developments, which would lift the Brent oil price forecast for the second half of 2024 by $5 to $105 bbl.

The United States issued new sanctions this week on people and companies based in Iran, China, and Venezuela, for enabling Iran's ballistic missile and drone programs, the Treasury Department said. The sanctions targeted those who have supported the Islamic Revolutionary Guard Corps and the defense ministry in the production and proliferation of the missiles and drones, Treasury said in a statement Wednesday.

In financial markets, a combination of strong macroeconomic data and recent comments from Federal Reserve officials suggesting the U.S. central bank is done with hiking interest rates pushed bond yields higher this week, while pressuring the U.S. dollar index. The working assumption is that the rise in longer-term yields could potentially substitute for another rate increase that slows the economy. Federal Reserve Chairman Jerome Powell stressed this week the economy has held up much better than anyone expected despite the Fed's aggressive monetary tightening campaign.

"It could be the case that the interest rates haven't been high enough for long enough. We certainly got a resilient economy on our hands," noted Powell during a speech at the New York Economic Club on Thursday.

Similar sentiment was echoed in comments by Atlanta Federal Reserve Bank President Raphael Bostic and Philadelphia Federal Reserve Bank President Patrick Harker, who asserted that it's time to hold interest rates steady and allow the economy to absorb past hikes.

"Bunch of our policy tightness still has not gone through the whole economy. The outlook for the economy is likely that we are not going to see a recession, but we will be gradually slowing down with inflation coming down to its 2% target over time," said Bostic to CNBC.

This week's macroeconomic data offered more evidence of a resilient U.S. economy amid the backdrop of strong consumer demand and a tight labor market. High-frequency unemployment claims dropped to a nine-month low 198,000 in the most recent week, with the large states of Texas, New York, and California, driving the decline in first-time jobless applications. Meanwhile, September retail sales jumped 0.7% after an upwardly revised 0.8% gain in August, marking the sixth consecutive month of growth in aggregate consumer spending.

NYMEX WTI futures for November delivery expired $0.62 lower at $88.75 bbl, with the next-month December contract settling the session with a $0.67 bbl discount against the expired contract. International crude benchmark Brent on ICE slipped $0.22 to $92.16 bbl. NYMEX November ULSD futures declined $0.0164 to $3.1566 gallon, while front-month RBOB futures added $0.0119 to $2.3736 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com