Oil Set for Weekly Gain as Middle East Supply Risks Outweigh Demand Fears

Oil prices edged lower in early trading Friday but remained on course for substantial weekly gains, as persistent geopolitical tensions in the Middle East overshadowed growing concerns about a potential slowdown in global demand.

International benchmark Brent crude futures dipped 0.08% to $76.24 a barrel, while U.S. West Texas Intermediate (WTI) crude fell 0.06% to $72.04 a barrel, according to pricing data reported by Reuters. Despite the minor pullback, Brent is set for a 6% weekly gain, with WTI on track to rise 5%.

Geopolitical Risk Premium

The primary driver for the weekly price surge is the escalating conflict between the United States and Iran. According to reports, Iranian armed forces launched attacks on U.S. military infrastructure in the Gulf on Thursday, which followed U.S. strikes on Iran's coastal provinces. The renewed fighting has heightened investor anxiety about potential supply disruptions.

The conflict has impeded the full reopening of the Strait of Hormuz, a critical maritime chokepoint through which approximately 20% of daily global oil and gas supplies passed before the war. However, the market impact has been somewhat contained. "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, a senior commodity strategist for ANZ bank, in a note.

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Economic Headwinds

Capping further gains are concerns that accelerating inflation could soften global oil demand. In China, the world's second-largest oil consumer, producer price inflation surged to a four-year high in June. This development is putting pressure on manufacturers' profit margins and could potentially curb energy consumption.

In the United States, economic data presented a mixed picture for demand. The number of Americans filing new claims for unemployment benefits fell last week, signaling a stable labor market. However, the broader inflation narrative continues to weigh on market sentiment.