Oil slides, heads for weekly gain

HOUSTON: Oil prices slid on Friday but were on course to gain more than 6 percent for the week after the United States and Iran resumed military exchanges in the seventh month of their conflict, while US diesel prices hit a record high.

Brent crude futures were down 23 cents or 0.24 percent at USD 95.29 a barrel by 10:38 a.m. CDT (1538 GMT) and West Texas Intermediate crude futures down 54 cents, or 0.59 percent, at USD 90.76.

Brent crude futures were up 6.1 percent for the week and US West Texas Intermediate crude futures had gained 8.3 percent.

The rally in oil prices combined with a much steeper increase in fuel prices has pushed inflation and government borrowing costs higher around the world and intensified warnings that the global economy might be heading for a hard landing.

READ MORE: Oil prices mixed as investors weigh ME escalation

“All sectors of the economy are affected by diesel. This is one of the reasons why the government bond yields in the United States are so high, it’s the expectation that inflation will continue to go up,” said Claudio Galimberti, chief economist at Rystad Energy.

Average US diesel prices hit record highs as renewed US-Iran hostilities and Ukrainian attacks on Russian refineries increased supply disruptions.

Analysts say risk premium is quick to appear in market

The US government has said Middle Eastern oil flows have returned to near normal levels in recent weeks, but analysts and tanker trackers have indicated that flows remain seriously disrupted.

“Oil seems to be in a phase where the conflict’s gridlock and recurring hostilities are regularly awakening a risk premium embedded in prices,” said Norbert Rucker, head of economics and next generation research at Julius Baer.

“So far, there is no indication that this week’s escalation materially impacted exports out of the Middle East and tightened the oil market,” Rucker said. “Oil’s current rally seems mostly mood and fear driven.”

US attacks this week that killed and wounded dozens, including Iranian civilians, were the fiercest clashes between the two countries since July.

Defence Minister Israel Katz renewed warnings that Israel would “cripple” Iran’s military and civilian infrastructure, including energy facilities, if Tehran attacked it.

A US campaign to throttle Iran’s economy by blockading its oil exports and stopping sanctions evasion is growing increasingly difficult to withstand, three senior Iranian sources said.

Four commodity vessels transited the Strait of Hormuz on Thursday, well below the 10-day average tally of about 15, preliminary shipping data showed.

Iraq increased its August oil exports to about 2.34 million barrels per day from about 1.35 million bpd in July, two Iraqi energy officials said on Wednesday.

Citi raised its average Brent crude price forecast for the third quarter to USD 86 a barrel from USD 80, saying the reopening of the strait was taking longer than previously expected.

ANZ analysts also raised their Brent crude forecast, to USD 95 a barrel in the short term, with upside risk if the Middle East conflict intensifies.