Oil prices held steady on Friday, with Brent crude eking out its first weekly gain in a month, as traders continued to strip out the geopolitical risk premium built into prices during the Iran war and shipping in the Strait of Hormuz improved.
Brent settled 0.45 per cent higher at $72.12 a barrel, while West Texas Intermediate added 0.13 per cent to end at $68.78. Both benchmarks on Thursday slumped to levels last seen before the war broke out, when Brent settled at $72.48 a barrel and WTI was at $67.02 on February 27.
From last week's close, Brent gained 0.18 per cent, while WTI retreated 0.65 per cent.
Citigroup now sees Brent declining to $60 a barrel by the end of the year, referring to "fundamentals [that] are rapidly reasserting themselves" as shipping returns to normal. It also noted softer Chinese buying and a less-than-expected inventory draw as other factors.
Citigroup analyst Francesco Martoccia said the bank continued to recommend selling summer rallies and expects Brent to be in a $60 to $65 range by December. Citi also expects the US-Iran deal to hold and a permanent agreement to be reached. Goldman Sachs and Morgan Stanley sounded bearish in their assessments and suggested a swing back into oversupply as traffic recovers through the strait.
Norbert Rucker, of Julius Baer, pointed to a "magnet in the sub-70s" pulling Brent lower, arguing the physical market has flipped from deficit to surplus as oil flows out of the Gulf, a shift compounded by hedge funds rushing from long to short positions in futures.
Shipping through the strait has partially resumed under the interim deal, even as Gulf equity markets remained muted through the week's indirect US-Iran talks, which wrapped up with little visible progress. Gulf oil exporters’ supply has resumed, with the UAE moving the fastest. Its exports climbed nearly 30 per cent last month to near their highest level since 2017 as Abu Dhabi leaned on its Habshan-Fujairah pipeline to bypass the strait.
Adding to the supply overhang, Opec+ is expected to approve another output increase when the group meets on Sunday, with sources pointing to a roughly 188,000 barrels per day increase for August. The group's seven core members are unwinding a 1.65 million bpd voluntary cut.
The UAE, which quit Opec in May owing to a mismatch between its capacity and quota, is no longer bound by any such decision and exports freely. Iraq has threatened to leave the group unless its own quota is raised to reflect its output capacity and post-war reconstruction needs.
The oil supply glut is now visible on the curve, with the six-month Brent spread turning negative this week, tipping the market into contango for the first time in months.
Tech lifts stock markets
Global stock markets, meanwhile, finished at their strongest in two months after a tepid US jobs report tamed expectations for an immediate interest rate rise from the US Federal Reserve.
The Labour Department on Thursday reported that non-farm payrolls added only 57,000 jobs in May, only about half of the 110,000 jobs projected by analysts.
US stock markets were closed on Friday for the July 4 holiday. On Thursday, the Dow Jones Industrial Average closed at a record high despite technology and chip stocks – which rallied earlier in the week, partly because of optimism over the US-Iran truce – sliding again amid renewed doubts over stretched AI valuations.
The benchmark S&P 500 was flat while the tech-rich Nasdaq Composite, which jumped by 2 per cent last Monday, settled 0.8 per cent lower. US semiconductor company Micron was down 7 per cent and Applied Materials fell more than 7 per cent. Chipmakers Marvell and SanDisk slid about 10 per cent each.
In Europe, London's FTSE closed 0.2 per cent higher to post a weekly gain, buoyed by financial, precious metals and chemicals stocks. Frankfurt's DAX and Paris's CAC 40 added 0.8 per cent and 0.4 per cent, respectively.
Earlier in Asia, Chinese bourses bounced back, led by technology stocks. The Shanghai Composite added 0.4 per cent, while Hong Kong's Hang Seng Index climbed 1.3 per cent. Tokyo's Nikkei 225 and Seoul's Kospi jumped 1.5 per cent and 6 per cent, respectively, as chip stocks rebounded.
Gold, meanwhile, ended the week higher owing to lowered bets for a Fed rate increase following the US jobs report. The precious metal gained 1.52 per cent to end at $4,175.07 an ounce.
