Oil posts weekly gain amid supply disruption fears in Middle East

Israel attacks Iran military sites, escalating tensions between the two countries

A general view of Tehran after several explosions were heard in Tehran on Saturday. AFP

Oil prices edged higher on Friday and recorded a weekly gain driven by concerns about Middle East supply disruptions, despite signs of weakening demand in some markets.

Brent, the benchmark for two thirds of the world’s oil, rose 2.25 per cent to end at $76.05 a barrel while West Texas Intermediate, the gauge that tracks US crude, settled up 2.27 per cent to $71.78 a barrel.

On Saturday, the Israeli military said it carried out “precise strikes on military targets in Iran” in response to the Iranian missile strikes.

A senior White House administration official said that Israel’s attack on Iran was “extensive, targeted and precise”, although that the US was not involved in the operation.

Iranian state media reported explosions in Tehran after Israel announced striking Iran's capital.

Earlier this month, the International Energy Agency said that the oil market would be faced with a “sizeable” surplus next year in the absence of a major disruption.

Non-Opec+ oil supply, driven by the Americas, is set to rise by 1.5 million barrels a day this year and next, with the US, Brazil, Guyana and Canada contributing more than 1 million bpd annually, the agency said in its oil market report.

Oil’s gains were limited last week by a larger-than-expected expansion in US crude stocks. US crude inventories, an indicator of the fuel demand in the world’s largest oil consuming country, grew by 5.5 million barrels to 426 million barrels in the week that ended on October 18, according to the US Energy Information Administration. Analysts polled by Reuters were expecting an increase of 270,000 barrels.

Investors are also paying close attention to the Chinese government's attempts to stimulate economic growth. China's crude consumption has shown signs of decline in recent months, which analysts attribute to both a slowing economy and a long-term shift towards the use of electric vehicles.

The country has announced several stimulus measures this year to address slowing manufacturing, a property market downturn and rising unemployment.

China's central bank recently announced its biggest economic stimulus scheme since the Covid-19 pandemic. It included lowering interest rates, reducing mortgage rates for existing homeowners, and a major cash injection into the economy.

“Demand is stagnating in the western world and also in China, while supply swells incrementally in the Americas,” said Norbert Rucker, head economics and next generation research at Julius Baer.

“[Opec+] will eventually revive parts of their ample spare capacity due to their unwillingness to structurally cease market share,” Mr Rucker said.

In September, the producer alliance extended voluntary oil output cuts of 2.2 million bpd until the end of November amid a drop in crude prices on concerns of slumping demand.