Crude heads for 5% weekly gain as US-Iran fighting continues

Oil prices surged over 5% weekly on Friday, as the US and Iran continued their conflict that now enters its seventh month. Brent crude futures declined 1.66% to $93.93 a barrel, while US West Texas Intermediate crude dropped 2.1% to $89.38. For the week, Brent rose 5% and WTI climbed 7%, the greatest weekly performance since July 13. This rally, paired with escalating fuel costs, has driven inflation and government borrowing expenses higher globally, and intensified warnings of a severe global economic downturn.

Commodity strategist Ole Hansen from Saxo Bank noted that commodities are "caught between rising rates and rising inflation," but the challenges are not equally harsh for all sectors. Energy and agriculture are thriving due to scarcity and geopolitical disruptions, while industrial metals benefit from tight supplies. Conversely, gold and silver are temporarily suffering from tighter monetary policies and a stronger dollar.

Rising US diesel prices hit record highs as the ongoing hostilities and Ukrainian assaults on Russian refineries exacerbated supply disruptions. European fuel reserves were notably below seasonal levels. In the most intense clashes since July, US strikes this week resulted in casualties and injuries, including Iranian civilians, in the Strait of Hormuz.

Iranian forces targeted vessels passing through the Strait and launched missiles at Jordan, Kuwait, and Bahrain. Israeli Defense Minister Israel Katz threatened to "cripple" Iran's military and civilian infrastructure, including energy facilities, if Tehran retaliates.

Although Washington stated that Middle Eastern flows have returned to near-normal levels, analysts and tanker trackers argue that disruption remains severe. Only four cargo ships passed through Hormuz on Thursday, significantly below the ten-day average of around 15, according to preliminary shipping data. The US noted that Middle Eastern flows have resumed near-normal levels, but experts and tracking services claim disruption persists.

Around a fifth of the world's oil and liquefied natural gas traversed the Strait of Hormuz before the war. Iraq increased August exports to approximately 2.34 million barrels per day from around 1.35 million in July, as per two Iraqi energy officials. Meanwhile, Saudi Arabia maintained the price of its flagship crude for Asia unchanged for next month, contrary to predictions of an increase.

Citi raised its third-quarter Brent forecast to $86 a barrel from $80, citing the delayed reopening of the Strait of Hormuz. ANZ extended its short-term forecast to $95, with Brent up nearly 60% this year.