Oil Set for Weekly Gain as Supply Risks Outweigh Weak US Demand

(Bloomberg) -- Oil edged higher, cementing a weekly advance, as simmering tensions in the Middle East and North Africa eclipsed signs of weakening US demand.

Brent crude traded near $78 a barrel after falling 0.8% on Thursday as US gasoline inventories swelled by the most in three decades. West Texas Intermediate was below $73. Implied American gasoline demand — a volatile number — dropped to the lowest in a year, Energy Information Administration data showed.

Tensions in the Middle East and North Africa ratcheted higher this week, with US Secretary of State Antony Blinken heading to the region for the fourth time since the Hamas attack on Israel in early October. The Islamic State claimed responsibility for an explosion in central Iran that killed almost 100 people. Tehran had earlier said the blast was aimed at punishing its stance against Israel’s invasion of Gaza. 

Protesters in Libya disrupted supply from the Sharara and El-Feel fields, which could take a combined 300,000 barrels a day off the market. Meanwhile, the Houthi militant group in Yemen claimed another attack on a merchant ship in the Red Sea.

“There’s still plenty of tension in the Middle East” with the Houthis in the Red Sea, a US airstrike in Baghdad, and the Islamic State blast in Iran, said Warren Patterson, head of commodities strategy at ING Groep NV. Still, the “bearish EIA report yesterday saw the oil market give back some gains.”

Geopolitical flare-ups notwithstanding, the demand outlook for crude still looks shaky. Wall Street is already cutting price forecasts for this year after global benchmark Brent dropped by nearly a fifth last quarter. A surge in supplies from outside the OPEC+ alliance, led by US shale drillers, is expected to continue, while consumption growth is forecast to slow.

Crude stockpiles at the Cushing, Oklahoma, hub rose for an 11th straight week to the highest since July, the EIA data showed, although nationwide levels fell.

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