Oil prices headed for weekly gain on rising Middle East tension

Oil edged higher on Friday and is headed for a weekly gain as supply concerns continue to rise on mounting tension in the Middle East and a disruption in production in Opec member Libya.

Brent, the benchmark for two thirds of the world’s oil, was trading 0.52 per cent higher at $77.98 a barrel at 11.24am UAE time.

West Texas Intermediate, the gauge that tracks US crude, was up 0.71 per cent at $72.70 a barrel.

Tension rose in the Middle East this week after twin blasts near the burial site of former Quds Force general Qassem Suleimani killed at least 84 people in Iran while a drone strike killed the deputy head of Hamas’s political wing, Saleh Al Arouri, in Beirut.

The developments stoked concern that the war could spread across the region and disrupt oil supplies.

Hezbollah leader Hassan Nasrallah warned that a decision by Israel to enter a full-scale war with the Iran-backed Lebanese group “would be costly” and “without limits or constraints”.

“If war is launched against Lebanon, then Lebanese interests require that we take the war to the end,” he said in a television address on Thursday.

Houthi attacks on cargo vessels in the Red Sea and the disruption to Libya’s production following protests at the Sharara and El-Feel oilfields also raised supply concerns.

“Oil markets, for now, seem to be looking through the elevated geopolitical tensions in the Middle East and Red Sea region,” said Edward Bell, senior director of market economics at Emirates NBD.

“Militant attacks on shipping in the Red Sea are not affecting production but [are] causing a rerouting of vessels to a much longer route around Africa. Attacks elsewhere in Iran and Iraq will also keep the geopolitical temperature high.”

As the Opec+ cuts take effect “we expect to see oil markets closer to balanced in [the first quarter] which amid geopolitical concerns over the security of supply should help put a floor under prices”, he added.

On November 30, the Opec+ alliance announced voluntary production cuts of 2.2 million barrels per day for the first quarter of 2024.