Oil Set for Strong Weekly Gain as U.S.-Iran Tensions Offset Demand Fears

Oil prices edged lower in early Friday trading but remained on track for significant weekly gains, as ongoing military exchanges between the United States and Iran kept supply disruption risks at the forefront for investors.

Price Action and Weekly Outlook

By 0125 GMT, key benchmarks showed minor declines after a strong week, according to Reuters data:

• Brent crude futures fell 6 cents, or 0.08%, to $76.24 a barrel.
• U.S. West Texas Intermediate (WTI) crude lost 4 cents, or 0.06%, to $72.04 a barrel.

Despite the slight dip, Brent was set for a 6% gain for the week, and WTI was headed for a 5% increase, reflecting a strong geopolitical risk premium embedded in the market.

Geopolitical Tensions Drive Market

The primary driver for the weekly rally remains heightened tensions in the Middle East. Iranian armed forces launched attacks on U.S. military infrastructure in Gulf states on Thursday, which followed U.S. strikes on Iran’s southern and eastern provinces, according to reports. This exchange further strained a fragile three-week-old ceasefire.

Ad

The conflict has delayed the full reopening of the Strait of Hormuz, a critical waterway for global energy markets. Before the war, the strait facilitated the passage of about 20% of daily global oil and gas supplies.

However, the market has found some reassurance in the U.S. decision to avoid targeting Iranian energy assets. "Despite the U.S. ramping up attacks on military sites in Iran, the market drew some reassurance from the Trump administration’s decision to avoid targeting Iranian energy infrastructure," said Daniel Hynes, senior commodity strategist for ANZ bank, in a note.

Economic Headwinds Cap Gains

Limiting further price increases are persistent concerns that accelerating global inflation could dampen oil demand. In China, the world's second-largest oil consumer, producer price inflation surged to a four-year high in June, squeezing manufacturers' profit margins amid weak domestic demand.

In the U.S., economic data indicated a stable but not rapidly expanding environment. The number of Americans filing for unemployment benefits fell last week, suggesting the labor market remains in what was described as a "slow-hire, slow-fire" mode.