Oil stays flat as Middle East worries offset by higher-for-longer rates outlook

Crude oil futures ended little changed Tuesday despite fears of escalating hostilities in the Middle East, with U.S. officials reportedly expecting Israel’s response to Iran’s unprecedented missile and drone attack will be limited in scope.

Analysts also believe the strike is unlikely to result in dramatic sanctions action on Iran’s oil exports from the Biden administration due to worries about boosting oil prices and angering top buyer China.

Meanwhile, strong U.S. retail sales in March are reinforcing expectations that the Federal Reserve will not start cutting interest rates before September, a generally bearish sign for oil as higher-for-longer rates are seen hurting demand.

The recent stronger than expected inflation data means the Federal Reserve likely will need more time than previously thought to be confident that inflation is on the path to 2%, Fed Chair Jerome Powell said Tuesday.

Front-month Nymex crude (CL1:COM) for May delivery ended -0.1% to $85.36/bbl, and front-month June Brent crude (CO1:COM) also closed -0.1% to $90.02/bbl.

ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (NRGU), (USOI), (UGA)

Despite the geopolitical tensions, OPIS global head of energy analysis Tom Kloza sees the next big move for oil, perhaps $10/bbl, as “lower and not higher.”

“As time passes, it gets more dangerous for speculators, money managers and commodity funds to be long oil” and reformulated gasoline, Kloza told Marketwatch, also noting a “very strong tradition” of prices peaking in April or early May.

Kloza said he expects to see an “intermission soon and a normal retreat” of 15% or so that removes more than $10/bbl from the price of crude and $0.30-$0.50/gal from gasoline futures.