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LONDON: Oil fell by about 1% on Friday as slowing demand forecast by the International Energy Agency (IEA) offset support from geopolitical tensions and optimism that the U.S. Federal Reserve might cut interest rates sooner than later this year.

On Thursday, the IEA said global oil demand growth was losing momentum and trimmed its 2024 growth forecast, in contrast to the view held by the Organization of the Petroleum Exporting Countries (OPEC).

Brent crude futures were down 82 cents, or 1%, at $82.04 a barrel at 1312 GMT. U.S. West Texas Intermediate crude futures fell 51 cents, or 0.7%, to $77.52 with the nearby March contract expiring on Tuesday. The April contract slipped 66 cents, also almost 1%, to $76.93.

“There was a tentative attempt to recover yesterday morning, but hopes were shattered after the IEA published its updated supply-demand outlook,” said Tamas Varga of oil broker PVM.

Oil rises on weaker dollar

Both contracts climbed over 1% on Thursday as a larger-than-expected drop in U.S. retail sales prompted hopes the Federal Reserve will soon start cutting interest rates, which could be positive for oil demand.

A producer inflation report expected later on Friday should also help inform the fate of U.S. interest rates.

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

Meanwhile, Middle East tensions persist, with the growing risk of a wider conflict in the region supporting prices.

Gaza’s largest functioning hospital was under siege on Friday in Israel’s war with Islamist group Hamas, as warplanes struck Rafah, the last refuge for Palestinians in the enclave, officials said.

On Thursday, Hezbollah said 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.

“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.

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