LONDON (Reuters) – Oil edged up towards $73 a barrel on Friday, heading for a weekly gain, supported by supply cuts and concern over potential further disruption to Middle East shipments as political tensions rise.
FILE PHOTO: A view shows a well head and a drilling rig in the Yarakta Oil Field, owned by Irkutsk Oil Company (INK), in Irkutsk Region, Russia March 11, 2019. REUTERS/Vasily Fedosenko/File Photo
U.S. sanctions on Iran have cut the OPEC member’s crude exports further in May, adding to supply curbs implemented through an OPEC-led pact. Meanwhile, fears of conflict in the Middle East have also raised concern about additional supply disruption.
Brent crude was up 4 cents at $72.66 a barrel by 1338 GMT. The global benchmark is up almost 3 percent this week, having ended last week steady and fallen the week before.
U.S. West Texas Intermediate crude added 31 cents to $63.18.
“The Middle East is acting as a tinderbox for conflict,” said Stephen Brennock of oil broker PVM. “So long as this remains the case, the energy complex will continue to be supported by bullish supply-side signals.”
The mounting tension overshadowed bearish developments for oil prices this week, such as an unexpected increase in U.S. crude inventories.
A Saudi-led military coalition in Yemen carried out several air strikes on the Houthi-held capital Sanaa on Thursday after the Iranian-aligned movement claimed responsibility for drone attacks on two Saudi oil pumping stations.
Earlier this week staff were evacuated from the U.S. embassy in Baghdad, while U.S. President Donald Trump ordered the deployment of an aircraft carrier group, B-52 bombers and Patriot missiles to the Middle East.
“When tensions are this high, with the U.S. deploying a sizeable military force, even a mistake or a tactical error by Iran could ignite the Middle East powder keg,” Stephen Innes, head of trading and market strategy at SPI Asset Management, told Reuters by email.
“There are lots of supply risks with tensions this high.”
Besides the drop in Iranian exports, Russian shipments have been disrupted and the North Sea – home to the crude underpinning Brent futures – is also in tighter supply owing to oilfield maintenance and outages.
The market is also awaiting a decision from the Organization of the Petroleum Exporting Countries (OPEC) and other producers over whether to continue with supply cuts that have boosted prices more than 30% so far this year.
A meeting of an OPEC-led ministerial committee in Saudi Arabia this weekend will assess member states’ commitment to their deal to reduce oil production and could make a recommendation on whether to extend or adjust the pact.
Additional reporting by Aaron Sheldrick and Colin Packham; Editing by Alexander Smith and David Goodman