KEY POINTS
- Brent crude fell 0.67 per cent to $105.21 a barrel, while US WTI declined 0.79 per cent to $97.20.
- Brent remained up 0.44 per cent for the week, while WTI gained 5.81 per cent.
- Disruptions around the Strait of Hormuz have raised concerns about global oil supplies.
- The International Energy Agency agreed to release more than 20 million barrels of diesel and remaining oil from an earlier emergency reserve release.
- Market analysts say easing tensions in the Middle East would help reduce pressure on oil prices.
MAIN STORY
Oil prices declined on Friday but remained on course for weekly gains as concerns about crude supplies from the Middle East and a larger-than-expected drawdown in US crude inventories supported the market.
Brent crude futures fell 71 cents, or 0.67 per cent, to $105.21 a barrel by 0352 GMT, while US West Texas Intermediate (WTI) crude futures dropped 77 cents, or 0.79 per cent, to $97.20.
Despite the declines, Brent had gained 0.44 per cent so far during the week, while WTI was up 5.81 per cent.
WTI settled more than three per cent higher on Thursday following a substantial drawdown in US crude stocks associated with production shutdowns caused by hurricane conditions.
Geopolitical tensions remained a major factor influencing prices, particularly concerns about the movement of oil through the Strait of Hormuz, a key shipping route for global energy supplies.
ING analysts said uncertainty in the Middle East and concerns about the sustainability of oil flows through the strait had contributed to a significant risk premium in the market. They added that an agreement between the United States and Iran would help restore confidence in continued oil supplies from the region.
Shipping data cited by Reuters showed that average clearance through the Strait of Hormuz stood at 11.62 million barrels per day over the seven days to October 13, according to Kpler. This represented about 68 per cent of the baseline of 17.15 million barrels per day.
Kpler analysts said intensified Iranian attacks had sharply reduced crude flows from the Gulf and expected the recovery in shipping through the strait to be slower and more uneven without a comprehensive political agreement.
The wider regional conflict has also escalated, with attacks reported in Yemen and on Saudi infrastructure, adding to concerns about the security of energy supplies across the region.
In response to rising prices, the International Energy Agency agreed on Thursday to release more than 20 million barrels of diesel to the market, alongside any oil remaining from a record emergency reserve release pledged in March to increase supply and moderate prices.
However, the measures have not eliminated market concerns. Haitong Futures said the rise in oil prices during the previous trading session suggested investors were dissatisfied with the steps taken so far. The firm argued that easing tensions in the Middle East would be more effective in cooling the market.
THE ISSUES
Oil prices are being influenced by competing pressures. The decline recorded on Friday contrasted with the weekly gains in both benchmarks, reflecting continued concern about supply disruptions even as authorities seek to increase the availability of petroleum products.
The Strait of Hormuz is particularly important because restrictions on shipping through the route can affect oil movements from Gulf producers. Prolonged disruption could tighten global supplies and sustain upward pressure on prices.
Emergency stock releases may provide additional supplies, but their effect could be limited if geopolitical tensions continue to disrupt production or shipping. A sustained easing of prices would depend partly on improved confidence in the security and continuity of oil flows.
For Nigeria, a prolonged period of elevated global oil prices could increase the cost of imported petroleum products and contribute to domestic inflationary pressures. The effect on government revenue and foreign exchange earnings would also depend on domestic crude production, export volumes and other market conditions.
WHAT’S BEING SAID
- “Uncertainty in the Middle East and concerns over the sustainability of oil flows through the Strait of Hormuz has the market pricing in a significant risk premium.” – ING analysts
- “Intensified Iranian attacks drove Gulf crude flows sharply lower.” – Kpler analysts
- “What would really cool the oil market is an easing of tensions in the Middle East.” – Haitong Futures
WHAT’S NEXT
Market attention will remain on developments affecting oil shipments through the Strait of Hormuz, the course of tensions between the United States and Iran, and the effect of emergency stock releases on available supplies.
BOTTOM LINE
Brent and WTI prices eased on Friday but remained on track for weekly gains as supply concerns and geopolitical tensions continued to support the market. Emergency stock releases may provide some relief, but a sustained reduction in prices will depend partly on improved security and continuity of oil supplies from the Middle East.
Source: Reuters
