Oil prices dip, still set for weekly gains amid Middle East tensions, rate cut hopes
22/06/2019
Singapore: Oil prices reversed earlier gains on Friday but benchmark Brent crude was still set for its first weekly gain in five weeks amid rising tensions in the Middle East and on hopes for a drop in US interest rates that may stimulate global growth.
Brent crude was down 10 cents, or 0.16%, at $64.35 a barrel by 0458 GMT. The global benchmark jumped 4.3% on Thursday, leaving it set for a weekly gain of nearly 4%.
US West Texas Intermediate crude was down 20 cents, or 0.35%, at $56.87 a barrel. But the US benchmark surged 5.4% on Thursday and is on track for a more than 8% increase this week.
US President Donald Trump initially played down Iran’s downing of a US military drone earlier this week. But reports on Friday said Trump had approved strikes against Iran before pulling back, raising concerns about crucial oil supplies being disrupted after the tanker attacks last week. “There is no doubt that a severe disruption to the transit of oil through this vulnerable route would be extremely serious,” said consultancy FGE Energy in a note.
Tension has been rising in the Middle East, home to over 20% of the world’s oil output, after attacks on two tankers near the Strait of Hormuz, a choke point for oil supplies. Washington blamed Tehran for the tanker attacks. Iran denied any role.
The demand-side picture has also improved, with expectations that the US Federal Reserve may cut interest rates at its next meeting.
Potential supply “disruptions have boosted energy prices combined with the dollar weakness after the Fed signalled an interest rate is near,” Alfonso Esparza, senior market analyst at OANDA, said in a note.
A weaker greenback tends to support oil prices because crude is usually priced in dollars. Another macroeconomic factor supporting prices is the plan by Beijing and Washington to resume talks to resolve a trade tariff war that has hit economic growth prospects.
“Trade anxiety has died down, pushing energy prices higher as global growth will not be pressured by a prolonged tariff war,” Esparza said.
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