Oil Prices Poised for Weekly Gain as Mideast Supply Risks Counter Demand Concerns

Oil prices held steady in early trading Friday, positioning the benchmarks for their first weekly advance in three weeks as geopolitical tensions in the Middle East offset a weaker demand outlook. A standoff between the United States and Iran over the critical Strait of Hormuz shipping lane is keeping a risk premium priced into the market.

Geopolitical Risks Bolster Prices

The primary driver for this week's gains, which saw both major benchmarks rise by approximately 4%, is the heightened uncertainty surrounding key Middle East oil transit routes. The main flashpoint is the Strait of Hormuz, which handles about 20% of global oil consumption.

• Conflicting Reports: Iran has claimed full control of the strait and stated it has closed the passage to commercial shipping. In contrast, U.S. officials maintain they are still assisting vessels to navigate the waterway.
• Shipping Diversions: Amid fears of potential military escalation, shipping data indicates that some vessels have begun rerouting to avoid the area, according to the source report.
• Broader Regional Instability: Compounding supply fears, Iran-backed Houthi militants have been attacking commercial ships in the Red Sea and the Bab el-Mandeb Strait, another vital chokepoint for crude oil transport.

Demand Forecasts and Inventories Cap Gains

Ad

Despite the strong geopolitical support, the week's rally has been tempered by bearish demand signals. Both the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) recently lowered their forecasts for global oil demand for the year.

Furthermore, a surprise and substantial increase in U.S. commercial crude inventories weighed on sentiment. However, separate data showed that the U.S. Strategic Petroleum Reserve has fallen to its lowest level in over four decades, which could limit downside price pressure in the longer term.

Market Snapshot

As of early Friday trading, Brent crude futures were up 0.18% at $87.23 per barrel, while West Texas Intermediate (WTI) crude futures gained 0.16% to trade at $81.39 per barrel, based on pricing data from Investing.com. The gains put both contracts on course to snap a two-week losing streak.