Oil heads for second weekly gain on Middle East supply risks

Oil was set for a second weekly advance as mounting Middle East supply risks outweighed a fresh release of emergency reserves.

Brent crude traded near $106 a barrel and is up almost 1% this week, while West Texas Intermediate was above $97. Uncertainty over a recovery in physical oil flows from the Persian Gulf has grown, with US Central Command on Thursday confirming that a container ship that sank in the Strait of Hormuz this week was struck by an Iranian projectile.

WTI has outpaced gains in Brent this week, narrowing the gap between the two benchmarks, as lower costs to ship American barrels buoyed demand. The cost of sending a typical cargo of US crude from the Gulf Coast to Rotterdam has fallen about 12% over the past week, according to Baltic Exchange data.

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International Energy Agency member nations pledged to complete the release of the remaining 100 million barrels from an intervention in March after lobbying from US officials. US President Donald Trump has been working to tame high gasoline and diesel prices at home, with rising energy costs stemming from the US-Iran war a key voter concern ahead of midterm elections next month.

Still, the geopolitical outlook remains uncertain. Trump declined to rule out using a weapon known as the “Mother of all Bombs” on Iran after the elections, according to an interview with Newsmax. CNN reported earlier this week that the US has developed strike plans that could include using the GBU-43/B Massive Ordnance Air Blast Bomb, citing officials familiar with the matter.

“The conflict is likely to escalate,” Eurasia Group analysts wrote in a note, raising their odds of an intensification in the conflict to 65% from 35%. “The standoff status quo is no longer sustainable for the US.”

The Singapore-flagged GFS Pride sank while being towed to shore after being hit by an Islamic Revolutionary Guard Corps projectile, US Central Command said. Despite the attack, more than 40 vessels moved through the Strait of Hormuz over the past 24 hours, suggesting flows are continuing.

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Elsewhere, US crude inventories dropped by 8.6 million barrels last week, the biggest decline since February, in part due to shut-ins from Hurricane Isaias, strong refinery runs and exports, according to government data. Distillate stockpiles fell by 2.5 million barrels to a fresh seasonal low.

Prices:

Brent for December dipped 0.3% to $105.57 a barrel at 10:09 a.m. in Singapore.
WTI for November delivery slipped 0.6% to $97.43 a barrel.

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