Crude oil prices retreated on Friday, but are still on course for a second straight week of gains as supply disruptions in the US and geopolitical tensions buoyed sentiments.
Oil prices fell after surging more than 3% on Thursday as traders booked profits.
Oil prices had come under some pressure earlier this week due to swelling inventories in the US and easing concerns over Israel’s response to Iran’s attack.
However, prices quickly recovered as Hurricane Milton in the US shut down several oil refineries, affecting supply.
Christopher Lewis, author at Fxempire said in a report:
Crude Oil Market rallied a bit during the early hours on Thursday as we continue to see a little bit of a recovery, and this does make a certain amount of sense because quite frankly, there’s a hurricane in the Gulf of Mexico and that is going to affect production.
Oil prices gain over 1% this week
Both crude oil benchmarks, Brent and West Texas Intermediate, have risen more than 1% so far this week.
Gains this week are somewhat muted compared with the previous week, when prices had surged 8%, following Iran’s attack on Israel.
However, analysts believe that the fall in prices earlier this week was a bit overdone.
Lewis said:
Furthermore, it was a little oversold as suddenly we saw a 4% drop earlier in the week out of the blue. So, I think at this point we are going to continue to see short-term pullbacks be bought into.
Brent crude breached $80 per barrel earlier this week as reports claimed that Israel was considering attacking Iran’s oil facilities. However, the fervour eventually died down after US President Joe Biden urged Israel to avoid targeting oil facilities in Iran.
Hurricane Milton may dampen fuel demand in US
Hurricane Milton, a category 5 storm, hit Florida on Wednesday, leaving a trail of destruction behind.
Several oil refineries have been closed due to the hurricane and gas stations ran out of fuel as fuel demand surged in the region. In addition, there are no oil refineries in Florida.
Experts believe that oil facilities in the Gulf of Mexico region will also remain out of action for the next few days, which is likely to push up crude oil inventories further in the US.
“”Investors are evaluating how hurricane damage might impact the U.S. economy and fuel demand,” Hiroyuki Kikukawa, president of NS Trading, a unit of Nissan Securities, told Reuters.
Geopolitical tensions linger
Even as the oil market assesses Israel’s possible response to Iran’s attack last week, prices are likely to remain volatile.
However, Israeli Defence Minister Yoav Gallant has said that any response against Iran would be “lethal, precise and surprising”.
Iran is backing several proxy groups fighting Israel, including Hezbollah in Lebanon, Hamas in Gaza and Houthi rebels in Yemen.
On Thursday, Israel had carried out strikes in central Beirut, Lebanon, killing 22 people and wounded 117 others, according to Lebanon’s health ministry.
The risk premium on oil prices is likely to remain intact in the near-term as the market tries to assess the real impact of Hurricane Milton, while waiting for Israel’s impending response.
At the time of writing, Brent crude was down 1.2% at $78.45 per barrel, while WTI was at $75 per barrel, down 1.1% from the previous close.
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