Brent crude started trading at under $79/bbl in February, peaking near $84/bbl due to ongoing uncertainty in the Middle East. Despite signs of defusing tensions initially with progress in ceasefire negotiations, Israel’s Prime Minister Benjamin Netanyahu rejected Hamas’s proposal and stated that “total victory” was possible. Additionally, US airstrikes continued, killing a commander from Kataib Hezbollah, and Israel launched airstrikes in the southern Gaza city of Rafah. As a result, oil prices rose towards $83/bbl by mid-month, despite significantly lower demand indicated by the Energy Information Administration (EIA) report showing a 12-million-barrel rise in US crude inventories. However, the demand sentiment in top oil importer China appeared to be improving following optimism over the nation’s economic recovery, as data revealed that travel and spending surpassed pre-Covid levels during the Lunar New Year. Towards the end of the month, a series of outages in US refineries hindered supply, and further ship attacks in the Red Sea exacerbated supply concerns, keeping Brent crude prices high. Overall, Brent crude increased by $3 across February to close the month at $82/bbl.

GBP remained virtually unchanged across February, opening at $1.268 and closing at $1.267 against USD, despite dipping to $1.255 mid-month. On the first day of the month, the Bank of England held interest rates at a 16-year high of 5.25% for the fourth consecutive time as expected. However, Governor Andrew Bailey indicated that the central bank would begin reviewing interest rate cuts after inflation remained at 4%, whereas a strong US jobs report led to expectations that the Federal Reserve would maintain higher rates for longer, leading to a strong US dollar. Swati Dhingra, an external Bank of England member, suggested that the central bank underestimates the downside risks of high interest rates to an already weak economy. By mid-month, Office for National Statistics data revealed that the UK economy officially entered a recession, with gross domestic product (GDP) shrinking by 0.3% between October and December, after contracting by 0.1% between July and September. However, many investors remain optimistic that the recession will be shallow, and recent data highlighted an improved economic outlook, with surging private sector activity and strong retail sales. Towards month-end, investors awaited crucial inflationary data from the US and Eurozone, as well as the upcoming UK spring budget on the 6th of March.

Throughout February, the energy industry continued to closely monitor tensions in the Middle East, with the prospect of a ceasefire which has yet to materialise after Hamas laid out a series of demands in response. Tensions escalated after Israel’s defence minister stated the country would launch a ground offensive against Rafah if Hamas does not release its remaining hostages before Ramadan in March. On the supply side, a committee of OPEC+ ministers proposed no changes to the group’s oil output plans, however, will soon have to decide whether to extend 2.2 million barrels per day (bpd) of voluntary cuts which expire at the end of March. In the US, after selling a record amount of oil from the stockpile in 2022, the Biden administration is slowly replenishing the Strategic Petroleum Reserve, purchasing 23.08 million barrels of domestically-produced crude oil since the sales and a further 3 million for delivery in August. Finally, the general market view in February is that Brent crude could surpass $90/bbl by May amid tightening market conditions, according to Standard Chartered and JP Morgan.