Crude oil futures are set to register a weekly gain amid escalating geopolitical tensions in the Middle East, overshadowing concerns over stubborn inflation in the United States and a murky demand outlook for the year. The West Texas Intermediate contract for March has climbed by 44 cents to reach $78.47 per barrel, while April Brent futures added 34 cents to settle at $83.20.

The rise in crude prices, which have increased by about 2% for the week, can be largely attributed to simmering tensions between Israel and Lebanon. Fears of the conflict in Gaza spreading to other parts of the Middle East are once again on the rise, as Israel retaliated against rocket attacks with airstrikes on southern Lebanon. Hezbollah, an influential militia aligned with Iran, has vowed to strike back. Furthermore, Israel's ongoing offensive in Gaza, specifically towards the southern city of Rafah, has created tensions with neighboring Egypt.

Speculative traders have been taking advantage of the geopolitical situation. Bob Yawger, managing director and energy futures strategist of Mizuho America, highlighted their involvement, stating, "This is geopolitics with flashing flights; it points right to specs taking advantage of the situation. They're rolling the dice expecting something will happen."

Despite these tensions, the oil market has largely shrugged off concerns regarding stubborn inflation in the U.S. and a uncertain demand outlook for the year. Wholesale prices in January rose more than anticipated, as indicated by a Labor Department report. Additionally, consumer prices for last month were higher than expected, as per data released on Tuesday. However, expectations of a Federal Reserve interest rate cut have been reduced due to this persistent inflation, which traditionally stimulates economic growth and increases crude demand.

Manish Raj, managing director at Velandera Energy Partners, mentioned that traders are cautiously digesting the wholesale price data from Friday, following losses incurred by those who reacted to the hot consumer prices earlier in the week. "Oil is just waddling up since nobody wants to be short into the weekend when the tailwinds favor oil prices," Raj added.

Meanwhile, the International Energy Agency (IEA) forecasted a slowdown in global crude oil demand growth for 2024. The IEA predicted a growth rate of 1.2 million barrels per day (bpd) for this year, significantly lower than the 2.3 million bpd reported in 2023. In contrast, OPEC projected a tighter market, with demand expected to increase by 2.2 million bpd this year, surpassing production growth outside the cartel of 1.2 million bpd.

The discrepancies in demand estimates have left analysts puzzled. Tamas Varga, an analyst with oil broker PVM, noted, "There is and has been a yawning chasm in demand estimates. It is always tricky and challenging to predict the medium- to long-term prospects, but the difference of opinions in global oil consumption for this year and the individual quarters, even for the current one, is clearly puzzling."

As the week comes to an end, crude oil futures continue to be influenced by geopolitical developments, overshadowing concerns of inflation and demand uncertainty. Traders will closely monitor the evolving situation in the Middle East as they navigate the unpredictable oil market in the coming weeks.