Oil steadies after two-day drop as rates, geopolitics dominate

Oil held a two-day drop, with traders assessing the outlook for global interest rates and geopolitical tensions in the Middle East.

Brent crude traded below $86 after falling almost 2% over the previous two days, while West Texas Intermediate was near $81. A surprise rate cut from the Swiss National Bank boosted the dollar, a headwind for commodities priced in the US currency.

Israel said it would invade Rafah no matter what the US says, potentially escalating tensions in the Middle East, as it battles Iran-backed Hamas in the Gaza Strip. The Houthis in Yemen, meanwhile, assured China and Russia that their vessels wouldn’t be targeted in the Red Sea.

Crude has advanced in the first quarter, having broken out of a narrow range in recent weeks as OPEC+ extended production cuts and Ukrainian attacks on Russian territory, including against refineries, intensified. However, gains have been limited by surging supply from outside the group, including from drillers in the US, and a muddled economic outlook in top importer China.

Despite the divergent drivers, crude markets have been relatively calm, with a gauge of volatility for global benchmark Brent sinking to a four-year low. Gasoline, meanwhile, is showing signs of strength, with the profit margin for making the fuel from crude in the US near the widest since August.