Oil prices rose on Friday and recovered a measure of sharp losses from the prior session, but were headed for a weekly decline as a series of unsubstantiated reports suggested that a Israel-Hamas ceasefire was in the works.

Prices were also encouraged by a softer dollar, which fell in anticipation of key nonfarm payrolls data due later in the day. The reading is widely expected to factor into expectations for U.S. interest rates.

Crude prices clocked volatile swings this week as markets weighed heightened tensions in the Middle East, a recovery in U.S. production and continued economic weakness in China.

But they were set to close the week lower, with a bulk of losses coming on Thursday after multiple media reports said Israeli and Hamas leaders were considering a ceasefire. A Reuters report said that while there was no ceasefire yet, Hamas had welcomed a ceasefire proposal earlier this week.

Brent oil futures expiring in March rose 0.9% to $79.38 a barrel, while West Texas Intermediate crude futures rose 0.8% to $74.36 a barrel by 20:17 ET (01:17 GMT). Both contracts were set to lose between 4.4% and 5.2% this week- their worst weekly performance since late-October.

Israel-Hamas ceasefire heralds easing Middle East supply disruptions
A potential ceasefire is expected to mark a severe de-escalation in military tensions in the Middle East, which have been a key point of support for oil prices in recent months.

Attacks by the Iran-aligned, Yemeni Houthi group on vessels in the Red Sea had disrupted shipping activity in the region. After U.S.-led forces recently struck back against the Houthis, the conflict saw several shipping operators steer clear of the Suez Canal, which in turn pointed to potential oil delivery delays in Europe and Asia.

But given that the Houthis’ main point of contention was the Israel-Hamas war, any de-escalation in the conflict is expected to wind down tensions in the Red Sea, lifting any disruptions to oil supplies.

Nonfarm payrolls awaited for more rate-cut cues
Markets were also positioning for key nonfarm payrolls data due later in the day, which is largely expected to factor into the path of U.S. interest rates.

Weakness in the dollar, before the reading, offered some relief to oil prices, although the outlook for the dollar remained underpinned by expectations of higher-for-longer interest rates.

The Federal Reserve largely downplayed expectations for early interest rate cuts in 2024, during a meeting earlier this week. The move had applied some pressure on oil prices, given that cooling economic activity, amid high rates, is likely to dent demand.

Weak demand signals from top importer China, following a swathe of underwhelming purchasing managers index readings, also weighed on crude.

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