Oil Prices Head for Weekly Gain as Hormuz Tensions Offset Demand Concerns

Oil prices held steady in early Friday trading, on track to post their first weekly advance in three weeks as escalating tensions in the Middle East added a significant risk premium to the market. The gains come despite headwinds from lowered demand forecasts and a surprise build in U.S. crude stockpiles.

Geopolitical Risks Support Prices

The primary driver for the weekly rally, which has seen prices climb around 4%, is the heightened uncertainty over the Strait of Hormuz, a critical chokepoint for global energy supplies. Conflicting reports from Iran, which claimed it has full control and has shut the waterway, and the United States, which stated it continues to facilitate shipping, have kept traders on edge.

Roughly 20% of the world's oil consumption passes through the strait, making any potential closure a major threat to global supply. Adding to regional instability, Yemen's Houthi group has also reportedly begun attacking commercial vessels in the Red Sea, another key shipping lane for crude oil.

Demand Outlook and Inventories Cap Gains

Tempering the rally, however, were downward revisions to demand forecasts from two key industry bodies. Both the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) recently cut their outlooks for oil demand for the year, signaling potential economic weakness.

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In the U.S., a surprisingly large increase in weekly oil inventories also weighed on market sentiment. While this data pointed to softer immediate demand, other figures showed the U.S. Strategic Petroleum Reserve has fallen to its lowest level in more than 40 years, which could limit the nation's ability to respond to future supply shocks.

Market Snapshot

As of 20:02 ET (00:02 GMT), benchmark crude prices reflected the cautious optimism:

• Brent crude futures were up 0.18% at $87.23 a barrel.
• West Texas Intermediate (WTI) crude futures rose 0.16% to $81.39 a barrel.