Oil Set for Weekly Gain as U.S.-Iran Clashes Stoke Supply Fears

Oil prices are on track for a strong weekly gain, buoyed by escalating military exchanges between the United States and Iran that have heightened concerns over potential Middle East supply disruptions. Despite a slight dip in early Friday trading, the persistent geopolitical risk premium has so far outweighed worries about the impact of rising inflation on global energy demand.

Geopolitical Tensions Escalate

The primary driver for this week's gains is the renewed conflict in the Persian Gulf. According to reports from Reuters, Iranian armed forces launched attacks on U.S. military infrastructure on Thursday, following U.S. strikes on Iran’s southern and eastern provinces. Iranian media also reported multiple explosions across southern Iran, including in Bushehr, the location of one of the country's nuclear facilities.

These developments have delayed the full reopening of the Strait of Hormuz, a critical maritime chokepoint. Prior to the conflict, the waterway facilitated the passage of approximately 20% of daily global oil and gas supplies.

Market Headwinds and Commentary

Capping the price gains are persistent concerns that accelerating inflation could dampen global oil demand. Data from China, the world's second-largest economy, showed producer price inflation surged to a four-year high in June, squeezing manufacturers' profit margins.

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However, the market has found some reassurance in the U.S. administration's approach. "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 cited by Reuters.

Price Snapshot

As of 0125 GMT, key benchmarks showed minor losses but remained on track for strong weekly performance:

• Brent crude futures fell 6 cents, or 0.08%, to $76.24 a barrel, heading for a weekly gain of approximately 6%.
• U.S. West Texas Intermediate (WTI) crude declined by 4 cents, or 0.06%, to $72.04 a barrel, on track for a weekly increase of about 5%.