Oil prices rise weekly despite recent fall, driven by supply tightness
Although oil prices fell on Friday, they recorded a weekly gain of over 8%; meanwhile, attacks in the Middle East fueled concerns about prolonged supply disruptions, and diesel prices in the US hit record highs.
Brent crude futures closed at $104.61 per barrel, down $3.02 (or 2.81%). WTI ended the day at $100.05 per barrel, a drop of $2.43 (or 2.37%). During the trading session, both benchmarks had touched their highest levels since mid-May.
Both oil grades surrendered earlier gains following reports of efforts to reach an interim agreement with Iran regarding the management of maritime traffic in the Strait of Hormuz.
On Thursday, Brent and WTI prices had surged more than 6% amid escalating attacks on shipping in the region. However, market participants began to reassess the risk on Friday.
News of talks regarding the future of the Strait of Hormuz had the greatest impact on market sentiment. Factors that triggered panic yesterday are easing today, though it remains uncertain whether the market will remain calm over the weekend.
In another development, satellite imagery on Thursday showed smoke near Saudi Arabia's East-West Pipeline, a vital link for diverting the Kingdom's crude oil exports to routes bypassing the Strait of Hormuz. There are reports that a pumping station on the pipeline was damaged by Iran-linked militants. However, it is surprising that the oil market has remained in decline despite reports of an attack on the East-West Pipeline, which has the potential to disrupt the flow of 7 million barrels of crude oil.
In a statement on Friday, the International Energy Agency (IEA) cited attacks on Saudi energy facilities, noting that Saudi Arabia's crude oil supply fell by 2.3 million barrels per day in August compared to the previous month, dropping to 6 million barrels per day, the lowest level in over three decades.
Additionally, pro-Iranian Houthi rebels in Yemen reached Perim Island in the Bab el-Mandeb Strait on Friday. This move could potentially strengthen the Houthis' control over one of the world's vital shipping routes.
Data released on Friday showed that the number of vessels passing through the Strait of Hormuz dropped to seven on Thursday, down from 11 the previous day.
Meanwhile, two European Central Bank officials signaled on Friday that further interest rate hikes could be implemented if the war-induced surge in energy prices persists and drives up other prices across the Eurozone.
War-related disruptions to oil supplies and Ukrainian attacks on Russian refineries caused the national average diesel price in the US to exceed $6 per gallon for the first time on Thursday.
As long as shipping constraints in the Gulf region and refinery disruptions in Russia continue, diesel and other refined products are likely to show a stronger upward price trend compared to the broader crude oil market.
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