By Arathy Somasekhar
HOUSTON (Reuters) -Oil prices were steady on Thursday as concern about fuel demand after slower-than-expected U.S. economic growth was offset by worries of supply disruptions as Israel stepped up airstrikes on Gaza's Rafah.
Brent crude futures rose 20 cents, or 0.2%, to $88.22 a barrel by 1:30 p.m. ET (1730 GMT) while U.S. West Texas Intermediate crude futures was flat at $82.81.
U.S. economic growth slowed more than expected in the first quarter, but an acceleration in inflation suggested that the Federal Reserve would not cut interest rates before September.
U.S. gasoline stockpiles fell by less than forecast and distillate stockpiles rose against expectations of a decline in the week to April 19, according to [EIA/S] Energy Information Administration (EIA) data on Wednesday, reflecting signs of slowing demand.
U.S. crude inventories unexpectedly fell sharply last week, the EIA report also showed, as exports jumped.
"Although we thought the Department of Energy inventory data for last week was bullish overall, there are some concerns regarding apparent demand," said Tim Evans, an independent energy analyst.
The concern about U.S. fuel demand arises amid signs of cooling U.S. business activity in April and as stronger-than-expected inflation and employment data means the Fed is seen as more likely to delay expected interest rate cuts.
"The current weakness in benchmark prices, after testing above $90 levels, is due to market sentiment refocusing on global economic headwinds over geopolitical tensions," said Emril Jamil, senior oil analyst at LSEG Oil Research.
Fighting in the Gaza Strip between Israel and Hamas is expected to expand as Israel may start an assault on Rafah, in the enclave's south, which may increase the risk of a wider war that could potentially disrupt oil supplies.
Still, oil supply has not been affected as yet and there have been no other signs of direct conflict between Israel and Hamas-backer Iran, a major oil producer, since last week.
"Traders continue to waver on how much geopolitical risk to price in after Israel and Iran backed away from further direct confrontation last week, Evans said, cautioning that some residual risk remains as Israel ramps up operations against Hezbollah in southern Lebanon and Hamas in Gaza.