Oil prices on track for second weekly gain on potential supply disruption amid Israel's threat to Iran

Brent and WTI are on pace to rise 1% after a rollercoaster week

A petrol station in St Petersburg, Florida, where damage from Hurricane Milton has affected distribution of fuel. Reuters

Oil prices declined on Friday, but were still on pace for a second straight weekly gain as investors remained wary of potential Israel strikes on Iran's crude facilities that could crude disrupt supplies to global markets from the Middle East.

Brent, the benchmark for two thirds of the world's oil, was down 0.88 per cent to $78.70 a barrel at 5.07pm UAE time. West Texas Intermediate, the gauge that tracks US crude, retreated 0.86 per cent to $75.20 a barrel.

Both benchmarks are on track to post about 1 per cent gain for the week. Crude prices appreciated strongly at the start of the week with Brent and WTI climbing about 3.6 per cent at the close on Monday, but lost steam, hitting the lows on Wednesday, before climbing again on Thursday.

Last week, oil prices posted the biggest weekly jump since the first quarter of 2023 amid escalating geopolitical tension, after Iranian strikes on Israel on October 1, which drew a vow of swift retaliation from Prime Minister Benjamin Netanyahu.

Discussions last week between Washington and Tel Aviv over a possible retaliatory strike gave crude prices a further shot in the arm. However, no military action against Iran or its energy infrastructure has been taken.

In addition, the US has had to deal with Hurricane Milton, which made landfall in Florida and caused widespread damage including to infrastructure and power lines, disrupting the distribution of petrol and other essential supplies. Petrol prices in the US have shot up, which dragged overall crude prices higher.

This has created a “perfect storm” for oil prices, Mohamed Hashad, chief market strategist at Dubai-based Noor Capital, said on Friday.

“As the situation in the Middle East remains uncertain and the impact of Hurricane Milton continues to unfold, oil prices are likely to remain volatile,” he said. “Investors and consumers alike will be closely watching developments in these areas for clues about the future direction of the energy market.”

Mr Hashad said any Israeli strike against Iran “could have a devastating impact on global energy markets, as it could disrupt oil production, transportation and refining operations”.

Iran, which produces more than 3 million barrels a day of oil, is an Opec member and is vital to maintaining balance in the global energy market. The ample supply of Opec+, however, has managed to keep a lid on oil prices, which remain about 15 per cent lower than their 2024 peak in April.

Opec+ held a panel meeting on Wednesday when the group did not make any changes to its production policy.

Last month, the producers' alliance extended voluntary oil output cuts of 2.2 million barrels per day until the end of November amid a drop in crude prices on concerns of slumping demand. Saudi Arabia, Russia, Iraq, the UAE, Kuwait, Kazakhstan, Algeria and Oman will pause scheduled increases of 180,000 bpd in October and November.

The market also continues to be wary of a lack of economic momentum in China. The world's second-largest economy and biggest importer of crude recently introduced new measures to stimulate its economy, which has taken a hit from a tepid industrial base and a troubled real estate sector.

Investors expect Beijing to make a stimulus an announcement on Saturday. China’s Finance Minister Lan Fo’an is scheduled to hold a press conference at 6am UAE time and is expected to discuss “intensifying” the country's measures to boost its economy, the State Council Information Office said on Friday.

Reports have suggested Beijing will announce an additional stimulus package of anywhere between 2 trillion yuan and 10 trillion yuan ($283 billion to $1.42 trillion).

“Their announcement should live up to high market expectations to prevent investors’ enthusiasm from entirely fading,” Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, said on Friday.