Oil prices ticked higher on Friday, with both Brent and U.S. West Texas Intermediate futures on track to post weekly gains, after the United States warned it could sustain a naval blockade of Iran indefinitely. Market participants cited elevated geopolitical risk around Middle Eastern flows as a factor supporting prices even as other data pointed to softer demand dynamics.
Market moves
At 1047 GMT, Brent futures were trading up 12 cents, or 0.14%, at $87.19 a barrel, while U.S. West Texas Intermediate (WTI) crude futures were up 50 cents, or 0.62%, at $81.75 a barrel. For the week, Brent and WTI were set to gain roughly 4.3% and 4.6%, respectively.
U.S. stance and comments
The rise followed statements from U.S. officials indicating readiness to maintain or increase pressure on Iran. On Thursday, U.S. authorities said a naval blockade of Iran could be maintained indefinitely and that additional economic measures could be imposed as ceasefire talks have stalled.
"Watch this space for more announcements coming next week because we are going to apply measures like have never been seen in the history of economic isolation of a country," Treasury Secretary Scott Bessent told Newsmax’s "Rob Schmitt Tonight" programme in an interview.
Bjarne Schieldrop at SEB Research observed that the U.S. approach reduces the likelihood of a near-term return to normal flows out of the Strait of Hormuz, saying it is "now suddenly without any near-term hopes."
Strait of Hormuz and shipping
As both the U.S. and Iran asserted competing claims related to control of the Strait of Hormuz, shipping traffic through the channel fell below the month’s average. The strait had, prior to the current conflict phase that began at the end of February, handled about one-fifth of global daily oil and liquefied natural gas supplies.
Separately, Abu Dhabi National Oil Company said two of its state-owned vessels were attacked while transiting the strait on Thursday, a move the UAE government condemned as an Iranian attack, according to the UAE state news agency WAM.
Supply, demand and inventories
Despite constraints on Middle Eastern supplies, forecasts from OPEC pointed to weaker demand growth. Meanwhile, U.S. crude inventories recorded their largest weekly increase in more than three-and-a-half years.
Norbert Rucker, head of economics and next generation research at Julius Baer, noted that recent reports from the IEA and the EIA showed storage holding up better than had been feared, and added that this should exert downward pressure on oil prices.
Outlook
The combination of elevated geopolitical risk around the Strait of Hormuz and evidence of ample storage and softer demand forecasts has left markets balancing upward pressure from supply concerns with downward pressure from inventory and demand signals. How these forces interact in the near term will depend on further announcements from policymakers and developments in regional shipping and security conditions.