By Alex Lawler
LONDON (Reuters) -Oil rose on Friday as heightened tensions in the Middle East raised the risk of supply disruptions from the oil-producing region, though the market is set for a weekly loss on expectations of fewer U.S. interest rate cuts this year.
Concern that Iran might retaliate for an attack on Monday by suspected Israeli warplanes on Iran’s embassy in Damascus has supported oil near a six-month high this week, despite dampening factors such as rising U.S. inventories.
“As we have seen on numerous occasions since December, the risk of a geopolitical event occurring during the weekend is once again lifting the risk premium ahead of the weekend only to drop again on Monday,” said Saxo Bank’s Ole Hansen.
futures climbed 79 cents, or 0.9%, to $90.53 a barrel by 0900 GMT, while U.S. West Texas Intermediate crude futures rose 92 cents, or 1.1%, to $85.94.
Prices briefly pared gains after the International Energy Agency cut its forecast for 2024 world oil demand growth and predicted a further slowdown in 2025. Oil was set for a weekly fall as Brent and WTI headed for a roughly 1% decline.
The U.S. expects an attack by Iran against Israel but one that would not be big enough to draw Washington into war, according to a U.S. official. Iranian sources said that Tehran has signalled a response aimed at avoiding major escalation.
ING analysts said they expect oil’s rally to retreat unless there is a further escalation in the Middle East or supply disruptions.
“We maintain our forecast for Brent to average $87 a barrel over the second quarter of this year,” the ING analysts added.
Friday’s gains erased the losses from the previous session, which was dominated by stubborn U.S. inflation that dampened hopes for an interest rate cut as early as June.
U.S. Federal Reserve officials signalled on Thursday that there was no rush to cut interest rates as U.S. inflation persisted.