Crude Oil Set for Weekly Surge Amid Ongoing US-Iran Conflict and Global Inflation Fears

Oil was on track for a weekly increase exceeding 5 per cent on Friday as the US and Iran continued their exchanges of fire in a conflict that has now entered its seventh month.

Brent crude futures dropped 1.66 per cent to $93.93 a barrel by 6.19 PM UAE time, while US West Texas Intermediate crude declined 2.1 per cent to $89.38. Over the week, Brent rose 5 per cent and WTI gained 7 per cent, marking its strongest weekly performance since July 13.

This rally, combined with a much sharper surge in fuel prices, has driven inflation and government borrowing costs higher across the globe, intensifying warnings that the global economy is heading toward a hard landing.

“Commodities are therefore caught between rising rates and rising inflation, but the pressures are far from uniform,” stated Ole Hansen, head of commodity strategy at Saxo Bank. “Energy and agriculture continue to benefit from scarcity and geopolitical disruption, industrial metals remain supported by tight supply, while gold and silver are temporarily paying the price for tighter monetary conditions and a stronger dollar.”

Average US diesel prices hit record highs as renewed hostilities and Ukrainian attacks on Russian refineries compounded existing supply disruptions. Furthermore, European stockpiles of the fuel remain well below seasonal levels.

US strikes this week resulted in dozens of casualties, including Iranian civilians, marking the fiercest clashes since July. Meanwhile, Iranian forces attacked vessels transiting the Strait of Hormuz and launched missiles at Jordan, Kuwait and Bahrain. Israeli Defence Minister Israel Katz warned that Israel would “cripple” Iran's military and civilian infrastructure, including energy facilities, if Tehran retaliated.

Preliminary shipping data showed that only four commodity vessels transited Hormuz on Thursday, falling significantly below the 10-day average of approximately 15. Although Washington stated that Middle Eastern flows have returned to near-normal levels, analysts and tanker trackers report that disruptions remain severe. Approximately a fifth of the world's oil and liquefied natural gas previously moved through the strait before the war.

In response to market shifts, Iraq increased its August exports to about 2.34 million barrels per day from approximately 1.35 million in July, according to two Iraqi energy officials. Meanwhile, Saudi Arabia kept the price of its flagship crude to Asia unchanged for the upcoming month, defying expectations of an increase.

Citi raised its third-quarter Brent forecast to $86 a barrel from $80, noting that the reopening of the strait is taking longer than anticipated, while ANZ elevated its short-term forecast to $95. Overall, Brent has surged nearly 60 per cent this year.