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

Oil prices edged lower in early Friday trading but are poised for substantial weekly gains after renewed military exchanges between the United States and Iran heightened concerns over potential supply disruptions in the Middle East.

Geopolitical Risk Lifts Market

Despite a minor dip in Friday's session, the geopolitical risk premium has firmly supported crude prices throughout the week. As of 0125 GMT, key benchmarks showed:

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

The primary driver for the weekly advance is the escalation of conflict between Washington and Tehran. According to Reuters, Iranian armed forces launched attacks on U.S. military infrastructure on Thursday, following American strikes on Iran's coastal provinces. These actions have strained a recent ceasefire and delayed the full reopening of the Strait of Hormuz, a critical chokepoint through which about 20% of daily global oil supplies passed before the conflict.

Market Analysis

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Analysts noted that while the military strikes have injected significant uncertainty into the market, the response has been somewhat contained. The decision by the U.S. to avoid targeting Iranian energy infrastructure has provided some reassurance to traders.

"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," Daniel Hynes, senior commodity strategist for ANZ bank, told Reuters. This sentiment was bolstered by comments from U.S. President Donald Trump, who said he did not expect a return to a full-scale conflict.

Economic Headwinds Emerge

While supply risks dominate the narrative, concerns about weakening global demand are capping further price gains. In China, the world's second-largest economy, producer price inflation surged to a four-year high in June, putting pressure on manufacturers' profit margins and potentially softening demand for energy.

In the U.S., a drop in weekly unemployment claims pointed to a stable labor market, but broader inflationary pressures remain a key concern for investors weighing the outlook for future oil consumption.