Oil heads for weekly gain as Middle East tensions support

Oil rose on Friday and heading for a weekly gain, as Middle East tensions and oil output disruptions caused by cold weather in the U.S., the world’s biggest producer, balanced concerns about the health of the Chinese and global economies. Pakistan launched strikes on separatist militants inside Iran on Thursday in a retaliatory attack, while the U.S. launched new strikes  against Houthi anti-ship missiles aimed at the Red Sea. Brent crude futures was up 44 cents, or 0.6%, to $79.54 a barrel, while U.S. West Texas Intermediate crude futures (WTI) gained 43 cents, or 0.6%, to $74.51.

“While the price of crude remains sensitive to events in the Middle East, as we’ve seen over the last couple of weeks, the oil market remains well balanced,” said Craig Erlam, analyst at brokerage OANDA. Supply disruptions remain an upside risk but there are downside risks too, including the global economy.” The premium of the first-month Brent contract to the six-month contract rose to as much as $2.15 a barrel on Friday, the highest since November. This structure, called backwardation, indicates a perception of tighter supply for prompt delivery. The nearby month of the U.S. crude market also shifted into a backwardation this week, albeit a shallower one. For the week, the U.S. benchmark is on track to rise over 2% while Brent is set to gain about 1%. Both markers climbed on Thursday after the International Energy Agency (IEA) raised its 2024 oil demand growth forecast.

Despite its higher demand growth forecast, the IEA’s projection is half that of producer group OPEC. The Paris-based agency also said that – barring significant disruptions to flows – the market looked reasonably well supplied in 2024. “The forecast for global oil demand growth remains unclear, with stakeholders and research institutions providing widely differing projections,” said analyst Bjarne Schieldrop of SEB. While the Middle East tensions have not shut down any oil production, supply outages continue in Libya and about 40% of oil output in North Dakota, a top producing U.S. state, remained shut due to extreme cold as of Wednesday.