Oil held an advance as the market weighed risks in the Middle East against hawkish comments from the Federal Reserve.

Brent crude traded above US$78 a barrel after rebounding from a three-week low on Monday. The U.S. has vowed more strikes against Iranian forces and regional proxies, while Yemen’s Houthi rebels claimed another attack on merchant shipping. That countered early-week gloom in financial markets as traders continued to discount the chance of a Fed interest rate cut in March.

While headline crude prices remain rangebound, traders are honing their interest on other corners of the market. BP Plc’s Chief Executive Officer Murray Auchincloss said the diesel market is short of supplies because of refinery shutdowns. There’s also been heightened trading in a key Asian crude trading window this week.

Saudi Arabia, meanwhile, kept the price of its main crude grade steady for March as the Organization of Petroleum Exporting Countries and its allies stick with production cutbacks to avert a surplus. The kingdom will need prices to average more than $90 a barrel this year to balance its budget, Fitch Ratings said. OPEC+ is set to decide in early March on whether to extend the curbs into the second quarter.

“Small gains with low conviction this morning, but we don’t think Brent can resist the upside,” said Bjarne Schieldrop, chief commodities analyst at SEB AB.

Prices:

• Brent for April settlement rose 0.7 per cent to $78.56 a barrel at 8:20 a.m. in New York.
• WTI for March delivery gained 0.7 per cent to $73.29 a barrel.