US oil prices rose 10% this week on fears of a US-Iran conflict

By Scott DiSavino and Devika Krishna Kumar

NEW YORK (Reuters) – Oil futures rose about 1 percent on Friday, with U.S. crude up 10 percent and global benchmark Brent gaining 5 percent for the week on fears the United States could attack Iran and could disrupt flows from the Middle East, which provides more than a fifth of the world’s oil production.

Meanwhile, U.S. gasoline futures rose 4 percent following a massive fire at the Philadelphia Energy Solutions refinery in Philadelphia, the largest on the U.S. East Coast.

“Elevated tensions between the United States and Iran have emerged as the main price driver for oil,” Jim Ritterbusch of Ritterbusch and Associates said in a note.

While rising tensions between the US and Iran largely drove crude prices higher, analysts said a meeting in early July of the Organization of the Petroleum Exporting Countries (OPEC) and its allies to reassess production targets, a potential easing trade tensions between the United States. The States and China and the refinery fire also supported prices.

Brent futures rose 75 cents, or 1.2 percent, to $65.20 a barrel, while the most active U.S. crude contract West Texas Intermediate (WTI) ended the session up 36 cents, or 0.6% to $57.43.

Brent gained about 5% for the week, its first weekly gain in five weeks, and WTI rose about 10%, its biggest weekly percentage gain since December 2016.

The U.S. benchmark rose 5.4 percent and Brent rose 4.3 percent on Thursday after Iran shot down a drone that the United States claimed was in international airspace and that Iran said is beyond its territory.

US President Donald Trump has said he has backed off a military strike against Iran because such a response to Tehran’s downing of an unmanned US surveillance drone would have caused a disproportionate loss of life.

Iranian officials told Reuters that Tehran received a message overnight from Trump via Oman warning that a US attack on Iran was imminent.

Officials said they responded by saying any attack would have regional and international consequences. They also said that Supreme Leader Ayatollah Ali Khamenei was against talks, but that they would convey the message to the US.

Trump spoke with Saudi Crown Prince Mohammed bin Salman on Friday about Middle East stability and the oil market, the White House said, after tensions with Iran sent oil prices higher.

Tensions have risen since US sanctions against Iran sharply cut oil exports from OPEC’s third-biggest producer and Washington blamed Tehran, which it denies any role, for a series of attacks on oil tankers in the Gulf.

“There is no doubt that a severe disruption to the transit of oil through this vulnerable route would be extremely serious,” consultancy FGE Energy said in a note.

The demand outlook also improved, with appetite for risk assets increasing after the European and US central banks signaled possible interest rate cuts this week.

A weaker dollar also supported oil prices, making crude, usually priced in dollars, cheaper for buyers in other currencies.

Another macroeconomic factor supporting prices is Beijing and Washington’s plan to resume talks to resolve a trade war that has hurt the outlook for economic growth.

“Trade anxiety has eased, pushing energy prices higher as global growth will not be pressured by a prolonged tariff war,” said Alfonso Esparza, senior market analyst at OANDA.

Concerns about slowing economic growth and a trade dispute between the US and China have sent oil lower in recent weeks. That came after Brent hit a 2019 high above $75 in April.

Hedge funds and money managers raised bullish bets on US crude in the week to June 18, the US Commodity Futures Trading Commission (CFTC) said on Friday, as tensions in the Middle East began to flare.

U.S. energy firms added one rig this week, adding to the number of oil rigs operating for the first time in three weeks. The rig count, however, is on track to fall for a seventh straight month in June as drillers cut spending to focus more on growing earnings instead of ramping up production.

(For an interactive chart on “US, Russia, Saudi Arabia Crude Oil Production”, click https://tmsnrt.rs/2QYNGAd)

(Additional reporting by Roslan Khasawneh in Singapore, Aaron Sheldrick in Tokyo, Dmitry Zhdannikov in London and Jessica Resnick-Ault in New York; Editing by Marguerita Choy and Mark Potter)