Oil prices slip as rate cut caution overshadows Mideast strikes

LONDON, Feb 5 (Reuters): Oil prices slipped again on Monday as a strong US job report which capped sharp falls last week dampened hopes of swift rate cuts, despite a US pledge to continue air strikes in the Middle East which have kept geopolitical tensions high.

Brent crude futures fell 65 cents, or 0.8 per cent, to $76.68 a barrel by 1105 GMT, while U.S. West Texas Intermediate futures were at $71.52 a barrel, down 76 cents, or 1 per cent.

Both benchmarks ended last week down about 7 per cent after stronger-than-expected US jobs data suggested interest rate cuts could be further out than expected.

The blockbuster report showed job growth accelerating in January and wages up by the most in nearly two years, signs that could complicate interest rates cuts by the US Federal Reserve which financial markets had envisioned could start in May.

The data "pushes the timeline for Fed's highly anticipated cutting cycle out into the second quarter", said Jeff Schulze, head of economic and market strategy at ClearBridge Investments.

Meanwhile, progress on ceasefire negotiations between Israel and Hamas appeared elusive, indicating tensions in the oil-producing region are set to linger.

"Hopes of a ceasefire between Israel and Hamas drove some of this weakness," ING analysts said in a note. "However, for now, a ceasefire does not appear imminent."

Investors remained wary of any escalation in the Middle East conflict, after the US signalled further strikes on Iran-backed groups in the Middle East in response to a deadly attack on US troops in Jordan.

The US also continued its campaign against Houthis in Yemen whose attacks on shipping vessels have disrupted global oil trading routes, although supply has been largely unaffected.

"Oil markets will likely respond by continuing to discount supply disruption risks in the Middle East," said Commonwealth Bank commodities analyst Vivek Dhar in a note, adding that would likely keep Brent futures below $80 a barrel.

In Russia, two Ukrainian attack drones struck the largest oil refinery in the country's south on Saturday, a source in Kyiv told Reuters, the latest in a series of long-range attacks on Russian oil facilities which has reduced Russia's exports of naphtha, a petrochemical feedstock.