Adedapo Adesanya
By Adedapo Adesanya
Oil settled slightly higher on Friday after Iran played down a reported Israeli attack on its soil, a sign that an escalation of hostilities in the Middle East might be avoided.
Brent futures rose by 18 cents or 0.21 per cent to trade at $87.29 a barrel and the US West Texas Intermediate (WTI) ended 41 cents or 0.5 per cent higher to $83.14 a barrel.
Both benchmarks spiked more than $3 a barrel earlier in the session after explosions were heard in the Iranian city of Isfahan in what sources described as an Israeli attack.
However, the gains were capped after Iran played down the incident and said it did not plan to retaliate.
Market sentiment has shifted from fear to relief this week as the Netanyahu government appears to have submitted to international pressure to avoid escalation, waiting days to retaliate and ultimately launching a limited strike against the Islamic Republic on Friday.
Investors had been closely monitoring Israel’s response to Iranian drone and missile attacks on April 13 that was in turn a response to a presumed Israeli air strike on April 1 that destroyed a building in Iran’s embassy compound in Damascus.
Meanwhile, US lawmakers have added sanctions on Iran’s oil exports to a pending Ukraine aid package after Iran’s strike on Israel last weekend. If passed through the US House and Senate, signed by President Joe Biden, and then implemented and enforced, the measures could eventually impact oil exports in the third largest producer in the Organisation of the Petroleum Exporting Countries (OPEC).
Investors, however, are not ruling out the possibility that Middle Eastern tensions will disrupt supply.
The International Monetary Fund (IMF) expects OPEC and its allies, OPEC+, will begin to increase oil output from July.
Meanwhile, analysts from Goldman Sachs and Commerzbank raised their Brent crude forecasts on Friday, taking into account geopolitical tensions as well as the prospect of rising demand and restrained supply by OPEC+.
OPEC+ members, led by Saudi Arabia and Russia, in March, agreed to extend voluntary output cuts of 2.2 million barrels per day until the end of June. That has helped keep oil prices elevated.
US energy firms this week added oil and natural gas rigs for the first time in five weeks, energy services firm Baker Hughes said. The oil and gas rig count, an early indicator of future output, rose by 2 to 619 in the week to April 19.
