Oil prices were holding steady after initially gaining 1% on Wednesday as the Israel-Hamas conflict gained momentum in Lebanon, with Israel responding to a rocket barrage from Hezbollah by launching a series of strikes in southern Lebanon, sparking fears of an expanding war.

Earlier on Wednesday, strikes launched from Lebanon into northern Israel reportedly wounded seven people. Israel responded shortly afterwards by unleashing its fighter jets in a series of strikes into Lebanon’s south, reportedly killing at least four people and wounding dozens of others.

The Lebanon-Israel cross-border strikes come as Palestinians await an assault on the southern city of Rafah after the failure of ceasefire talks that ended in Egypt on Tuesday. There has been no breakthrough in talks attended by the U.S., Israel, Egypt and Qatar, and there is no indication of another round.

West Texas Intermediate (WTI) was trading down 0.18% at $77.33 on Wednesday at 11:33 a.m. ET, while Brent crude was trading up slightly by 0.12% at $82.67.

Also driving oil prices on Wednesday was the market’s optimistic view on OPEC’s robust growth forecast; however, while the weekly inventory report from the U.S. Energy Information Administration (EIA) showed a drop in U.S. fuel stocks, the draw wasn’t big enough to make up for a huge build in crude oil inventory. The EIA estimated a crude build of 12 million barrels for the week ended February 9.

At the same time, markets are concerned that the U.S. Federal Reserve’s plan to defer expected interest rate cuts.

Tuesday’s inflation report showed the consumer price index (CPI) rising 3.1% in January, year-over-year, up 0.3% from December and higher than expectations. That report dented the U.S. stock market on Tuesday, and suggested to investors that the Fed may delay the start of interest rate cuts.

“Currently events around Israel and Gaza, together with Ukraine’s war against Russia, weighs more on sentiment than disappointing U.S. inflation data,” PVM analyst Tamas Varga told Reuters on Wednesday.

By Tom Kool