Oil ends higher on fresh tensions in the Middle East

Oil ends higher on fresh tensions in the Middle East

Oil futures ended higher on Friday, after a fresh report that Iran has seized a U.K.-flagged tanker raised the potential for disruptions to the flow of crude through the Strait of Hormuz. As Market Watch reports, prices had seesawed between losses and gains throughout the trading session, finding earlier support following a claim by the U.S. on Thursday that it shot down an Iranian drone at the waterway, though Iran has reportedly denied that incident.

For the week, however, U.S. crude oil prices fell sharply as concerns over a slowdown in demand remained and U.S. production looked to soon fully recovery from the recent storm-related disruption.

There was an “insane downward trend in crude oil this week,” with decreased demand due to global economic slowdowns and expectations for an annual surplus of U.S. crude-oil supply, said James Hatzigiannis, senior commodities associate at Long Leaf Trading Group. “I think it is a bit of an overreaction and you should see prices recover next week if there are any progress on the U.S./China trade front or any escalation of tensions between the U.S. and Iran.”

West Texas Intermediate crude for August delivery CLQ19, +0.80%  rose 33 cents, or 0.6%, to settle at $55.63 a barrel on the New York Mercantile Exchange. Prices for the most-active August contract, which expires at Monday’s settlement, settled 7.6% lower for the week. That was the largest weekly percentage loss since the week ended May 31, FactSet data show.

Brent crude BRNU19, +0.29%  for September delivery, the global benchmark, added 54 cents, or 0.9%, to $62.47 a barrel on ICE Europe, for a weekly decline of 6.4%.

BBC News reported Friday that Iranian media said the Iranian Revolutionary Guard seized the British-flagged oil tanker known as Stena Impero. It was the latest in a series of incidents and confrontations near the Strait of Hormuz, a narrow waterway through which around a third of global seaborne crude oil must pass.

Iran had denied that one of its drones had been destroyed, hours after President Donald Trump said Thursday that the USS Boxer, an amphibious assault ship, had destroyed a drone that had flown too close. Trump last month said he called off a retaliatory strike at the last minute after Iran shot down a U.S. military drone near the strait.

Oil prices were pressured earlier in the week in part due to signs the U.S. and Iran were moving closer to negotiations over Tehran’s missile program. Data showing a smaller-than-expected weekly fall in U.S. crude supplies and sizable gains in petroleum product stocks, along with the recovery in Gulf of Mexico oil production in the wake of Hurricane Barry, and expectations for a slowdown in demand, all combined to push prices lower.

Meanwhile, International Energy Agency Executive Director Fatih Birol on Thursday told Reuters the agency was cutting its 2019 forecast for global oil-demand growth to 1.1 million barrels a day versus its June forecast of 1.2 million barrels a day.

“We do believe that oil market fundamentals are at an inflection point,” said Jason Gammel, energy analyst at Jefferies, in a note. “Non-OPEC supply will grow by over 2 million barrels a day in 2020, while demand growth is weak.”

The decision earlier this summer by the Organization of the Petroleum Exporting Countries and its allies to extend production cuts should be enough to draw down inventories in major oil-using economies through the end of the year, but will need to be extended through 2020 just to keep the oil market near balance, he said.

Meanwhile, oil drilling activity in the U.S. appeared to slow, as the number of active domestic oil drilling rigs fell for a third consecutive week, down 5 at 779 this week, according to data from Baker Hughes BHGE, +1.07%

In other energy trade, August gasoline RBQ19, +0.73%  rose 0.6 cent, or 0.3%, to $1.8405 a gallon, with prices down 6.9% for the week, while August heating oilHOQ19, +1.80%  rose 2.7 cents, or 1.5%, to $1.8896 a gallon, ending 4.6% lower for the week. August natural gas NGQ19, -1.49%  lost 3.6 cents, or 1.6%, at $2.251 per million British thermal units, for a weekly loss of 8.2%.