Investing.com -- Oil prices cut losses to settle higher Monday, as fresh supply concerns following wave of retaliatory U.S. strikes against Iranian-backed militias in the Middle East helped offset a rise in the dollar on expectations that the Federal Reserve is likely to keep interest rates higher for longer.
By 14:30 ET, the U.S. crude futures contract settled 0.7% higher at $72.78 a barrel, while the Brent contract added 0.9% to $77.99 per barrel.
US strikes renew supply risk premium in oil prices
The US launched more retaliatory airstrikes against Iran-backed militias in Iraq, Syria and Yemen over the weekend, in response to the deadly drone strike carried about by Iran-allied militants. The U.S. also warned that it intends to take further retaliatory measures, raising fears of a wider conflict in the oil-rich Middle East and the potential of crude supply disruptions.
The move renewed the supply risk premium in oil prices that had cooled somewhat following hopes, albeit slim, of an Israel-Hamas ceasefire.
"Reports of a ceasefire agreement between Israel and Hamas emerged over the weekend, however US National Security Advisor, Jake Sullivan, said agreement isn’t imminent," ANZ Research said in a note.
Dollar strength keeps lid on oil prices
The dollar jumped Monday after Federal Reserve Chair Jerome Powell reiterated in an interview with CBS news show "60 Minutes" aired on Sunday, that the central bank is not likely to slash borrowing costs in the near-term. Instead, Powell said that the Fed will seek clearer signs of easing inflation and a cooling labor market before unwinding policy.
A stronger dollar makes oil, priced in the U.S. dollars, more expensive and less attractive to foreign buyers.
The remarks curb investor optimism for an early rate cut, with the odds of March cut dropping to 18% from a peak of 80% in December.
(Scott Kanowsky, Ambar Warrick contributed to this report.)