Representational image. Reuters File

Following a surge in the previous day on disappointing US retail sales data that raised hopes that the Fed could cut interest rates sooner than anticipated, oil prices paused on Friday due to an IAE projection of declining demand.

As of 03:42 GMT, Brent oil futures were down 9 cents, or 0.1%, to $82.77 a barrel. Futures for US West Texas Intermediate oil increased by 4 cents to $78.07 a barrel.

A greater-than-expected decline in US retail sales on Thursday sparked optimism that the Federal Reserve would soon begin lowering interest rates, which might be good for the market for oil. As a result, both futures increased by more than 1%.

According to data from the US Commerce Department, retail sales fell 0.8% in January, marking the worst decline since February 2023. Economists polled by Reuters had forecast retail sales dipping 0.1%.

“Hopes for US rate cuts provided support on Thursday, but investors are now adjusting their positions ahead of a long weekend in the US,” said Hiroyuki Kikukawa, president of NS Trading, a unit of Nissan Securities, noting Feb. 19 is a US holiday.

“While keeping a close eye on interest rate trends, investors will continue to assess whether geopolitical risks in the Middle East will spill over into crude supply chains,” he said, predicting WTI to trade in the $70-$80 range for a while.

Weighing on market sentiment, Paris-based International Energy Agency (IEA), the industrialised world’s energy watchdog, said on Thursday that global oil demand growth was losing momentum and trimmed its 2024 growth forecast, in sharp contrast to the view held by the Organization of the Petroleum Exporting Countries (OPEC).

The IEA’s monthly report said it expects global oil demand to grow by 1.22 million barrels per day (bpd) this year, slightly down from last month’s estimate. OPEC on Tuesday stuck to its much steeper growth forecast of 2.25 million bpd.

In the Middle East, Hezbollah said on Thursday it fired dozens of rockets at a northern Israeli town in a “preliminary response” to the killing of 10 civilians in southern Lebanon, the deadliest day for Lebanese civilians in four months of cross-border hostilities.

Meanwhile, Israeli forces said on Thursday they had raided the biggest functioning hospital in Gaza as footage showed chaos, shouting and gunfire in dark corridors filled with dust and smoke.

Analysts said the risk of a wider Middle East conflict could continue to guide crude prices.

“I would expect the latest gains from an increased Mideast risk premium to stick, especially going into the weekend,” said Vandana Hari, founder of oil markets analysis provider Vanda Insights.

“The impending Israeli offensive in Rafah has the potential to unleash a response from the Houthis, which have been a bit quiet of late in the Red Sea, and other Iran-backed militia in the region,” Hari added.