LONDON: Oil prices were on course to gain more than 6% for the week as the United States and Iran resumed military exchanges in the seventh month of their conflict, while US diesel prices reached a record high.
Brent crude futures were up 6.1% for the week, while US West Texas Intermediate (WTI) crude futures had gained 8.3%.
Both contracts edged lower on the day, however, with Brent crude down 75 cents, or 0.79%, at $94.77 a barrel by 1230 GMT, while WTI fell 95 cents, or 1.04%, to $90.35.
Rising fuel costs fuel inflation concerns
The rally in oil prices, combined with a much steeper rise in fuel prices, has pushed inflation and government borrowing costs higher worldwide and intensified concerns that the global economy could be heading for a hard landing.
“All sectors of the economy are affected by diesel. This is one of the reasons why government bond yields in the United States are so high; it’s the expectation that inflation will continue to go up,” said Claudio Galimberti, chief economist at Rystad Energy.
Average US diesel prices reached record highs as renewed US-Iran hostilities and Ukrainian attacks on Russian refineries increased supply disruptions.
Analysts warn oil flows remain disrupted
The US government has said Middle Eastern oil flows have returned to near-normal levels in recent weeks. However, analysts and tanker trackers said flows remain seriously disrupted.
A US campaign to throttle Iran’s economy by blockading its oil exports and preventing sanctions evasion is becoming increasingly difficult to withstand, three senior Iranian sources said.
“The combination of renewed US-Iran hostilities and ongoing uncertainty around the Strait of Hormuz has been enough to reprice risk higher,” said Tim Waterer, chief market analyst at KCM Trade.
Hormuz traffic remains below average
Four commodity vessels transited the Strait of Hormuz on Thursday, well below the 10-day average of around 15 vessels, preliminary shipping data showed.
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Iraq increased its August oil exports to around 2.34 million barrels per day (bpd), from approximately 1.35 million bpd in July, two Iraqi energy officials said on Wednesday.
Citi raised its average Brent crude price forecast for the third quarter to $86 a barrel from $80, saying the reopening of the Strait of Hormuz was taking longer than previously expected.
ANZ analysts also raised their short-term Brent crude forecast to $95 a barrel, with further upside risk if the conflict in the Middle East intensifies.
