Oil posts largest weekly gain in a month amid supply risks from Israel-Gaza war

US crude stocks, an indicator of fuel demand, rose by 10.2 million barrels last week, official data shows

An oilfield in Texas. Oil prices jumped more than 5 per cent on Monday as traders feared the Israel-Gaza war would escalate into a broader conflict. AP

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Oil rose on Friday and posted its largest weekly gain in a month as supply risks from the Israel-Gaza war offset a large build-up in US crude stocks.

Brent, the benchmark for two thirds of the world’s oil, settled 5.69 per cent higher at $90.89 a barrel on Friday.

West Texas Intermediate, the gauge that tracks US crude, closed up 5.77 per cent at $87.69 a barrel.

On Thursday, Brent settled 0.21 per cent higher at $86 a barrel. WTI closed down 0.69 per cent at $82.91 a barrel.

“Crude prices are surging as the oil market will remain very tight given escalating geopolitical risks could threaten supplies and after banks continue to describe the US economy as resilient,” said Edward Moya, senior market analyst at Oanda.

Oil prices jumped more than 5 per cent on Monday as traders feared that military clashes between Israel and Hamas would escalate into a broader conflict, potentially disrupting Middle East crude supplies.

On Friday, Israel ordered 1.1 million people living in northern Gaza to evacuate their homes in 24 hours, in a sign that Israel is set to intensify its offensive against Gaza.

More than 2,800 people have been killed in the conflict since Hamas launched its attack on Saturday.

Iran’s Foreign Minister has warned that the war in Gaza could spread across the region if Israel does not stop its assault on the Palestinian enclave.

Lebanese armed group and political party Hezbollah, Iran’s main ally in Lebanon, has engaged in several violent exchanges with Israel this week, and there are fears of a second front as a result.

“While there remains incomplete information at this early stage into the conflict, there has been no impact to current global oil production,” said Ehsan Khoman, head of ESG, commodities and emerging markets research at MUFG.

“We see it unlikely that there will be any immediate effects on the near-term supply-demand balances and oil inventories.”

However, the conflict may result in a more “gradual-than-expected” unwinding of Saudi Arabia's production cut and the US move to reinforce sanctions on Iran, resulting in tighter supply over time, he said.

On Thursday, Saudi Energy Minister Prince Abdulaziz bin Salman said Opec+ would continue to act pre-emptively, while Russia’s Deputy Prime Minister Alexander Novak said the market balance was fragile.

Saudi Arabia and Russia have agreed to continue with combined voluntary supply cuts of 1.3 million barrels per day until the end of the year.

Meanwhile, US crude inventories, an indicator of fuel demand, rose by 10.2 million barrels in the week that ended on October 6, according to the US Energy Information Administration.

Analysts polled by Reuters were expecting an increase of 500,000 barrels.

Total petroleum stocks fell by 1.3 million barrels last week, while distillate fuel inventories decreased by 1.8 million barrels, the EIA data showed.

The International Energy Agency on Thursday slashed its oil demand growth forecast for next year, citing a “deteriorating economic climate”.

The Paris-based agency now expects crude demand to expand by 900,000 bpd in 2024, down from its previous growth estimate of one million bpd.

However, the IEA raised its 2023 demand forecast to 2.3 million bpd, from a previous estimate of 2.2 million bpd, citing “buoyant” demand growth in China, India and Brazil.

Meanwhile, Opec stuck to its forecast for oil demand growth for 2023 and 2024 and said it expected the global economy to grow at a faster pace this year.

World oil demand will rise by 2.25 bpd in 2024, compared with a growth of 2.44 million bpd this year, Opec said in its monthly oil market report.

However, the oil producer’s group now expects the global economy to grow by 2.8 per cent this year, up slightly from its previous projection of 2.7 per cent growth.