WTI rebounds to near $78 ahead of crucial US inflation readings

• WTI rises to $78 as uncertainty deepens over a truce between Israel and Palestine.
• The outlook for oil demand remains weak as the Fed maintains a hawkish stance.
• Uncertainty deepens over oil demand as the US EIA reported higher oil inventories for the week ending February 23.

West Texas Intermediate (WTI), futures on NYMEX, is up 0.28% in Thursday’s European session after a strong recovery from $77.60 ahead of key United States Personal Consumption Expenditure Price Index (PCE) for January, which will be published at 13:30 GMT.

The monthly inflation data is forecast to rise 0.4% in January, at a higher pace than the 0.2% increase in December. January Core PCE is also projected to grow at an annual pace of 2.8% versus. 2.9% in December. Federal policymakers track the underlying inflation for policy decision-making as base effects don’t distort it.

Meanwhile, investors are worried about the near-term demand for oil due to the risks of interest rates remaining restrictive for extended periods. Fed policymakers see no rush to rate cuts as they need to observe more data to confirm that inflation will return to the desired rate of 2%. The oil demand typically reduces in a high interest-rate environment.

Downside risks to oil demand escalated after the US Energy Information Administration (EIA) reported on Wednesday that crude oil stockpiles rose by 4.199M against expectations of 2.743M in the week ending February 23.

Meanwhile, the downside in the oil price remains well-supported as uncertainty deepens over a ceasefire between Israel and Palestine-backed Hamas. On Wednesday, Hamas said that it fired a volley of rockets toward northern Israel, which has downplayed expectations of a ceasefire. However, US President Joe Biden is confident there will be a truce by March 4.