Oil holds above US$83 as Russia-Ukraine escalation counters Middle East supply hopes

Oil prices remained above US$83 per barrel on Friday, following a prior day's surge, as escalating conflict between Russia and Ukraine captured market attention. Russian President Vladimir Putin announced that negotiations with Ukraine had yielded no results, signaling a potential intensification of the military campaign. Meanwhile, Ukrainian attacks on Russian refineries and ports continued to strain the nation's energy infrastructure, prompting worries over Russia's capacity to export crude and refined petroleum products.

Brent crude also maintained a level above US$89 per barrel on Friday, despite the heightened supply concerns. The benchmarks were expected to conclude the week on a downward trajectory, as traders weighed the potential for tighter Russian supplies against diplomatic progress in the Middle East. Market optimism was bolstered by reports of an Iran-Oman revenue-sharing agreement for the Strait of Hormuz, a vital passage for global oil shipments.

The Iranian military confirmed the deal, though Tehran emphasized it did not guarantee an immediate reopening of the strait. This development provided a counterbalance to the upward pressure on oil prices stemming from geopolitical risks elsewhere. The US dollar index also climbed above 99 on Thursday, buoyed by robust US economic data that bolstered expectations of a Federal Reserve interest-rate hike before year-end.

In the preceding four weeks, the index had fallen 2.39%, but it still stood 1.32% higher over the past 12 months. Trading Economics' global macro models and analysts' projections predict the Dollar Index to reach 98.612 by the quarter's end and 97.071 within a year. The Personal Consumption Expenditures (PCE) price index rose 0.2% month-over-month in July, surpassing the 0.1% increase forecasted by economists.

This marked a reversal from the 0.1% decline witnessed in June. Investors awaited Federal Reserve Chair Kevin Warsh's address at the annual Jackson Hole symposium for additional insights into the bank's policy stance, although he was not anticipated to offer a clear indication on the Fed's September decision. The recent decline in oil prices, coupled with signs of diplomatic breakthroughs in the Middle East, had also helped temper concerns about short-term inflationary pressures.

Investors remained vigilant, considering the implications of the US Treasury's expanded debt buyback program and broader US fiscal risks.