Oil posts second straight weekly drop as surplus fears replace shortage fears

Oil weakened on Friday to close a second straight week of declines, as traders weighed signs of a growing global supply surplus against Washington's focus on blockading Iran while ramping up other economic pressure in the nine-month war. Brent futures settled at $95.84 a barrel, up two cents on the day, while American West Texas Intermediate finished at $88.56, down 18 cents. For the week, both benchmarks recorded a drop of about 2.5 percent, after plunging 16 percent and 13 percent respectively the week before.

A report released on Friday by the International Energy Agency pointing to a rise in the global oil surplus accelerated what analysts described as a major shift in the market. 'It's clear the biggest fear a few months ago was a fear of shortage,' said Phil Flynn, senior analyst at the Price Futures Group. 'Now it looks like the biggest fear is a surplus.'

A volatile week for crude

Trading was volatile through the week: earlier hopes for a rapprochement between the United States and Iran were offset by strikes on Saudi Arabian infrastructure by Yemen's Iran-aligned Houthi movement and attacks on tankers shipping crude out of the Gulf. The American president said on his social media platform that a deal with Iran was not necessary to end the war. 'The oil market is torn between increased supply coming out of the Middle East and that there hasn't been any change in the negotiating positions of the United States and Iran, which is refusing to allow nuclear inspectors into their country,' said Andrew Lipow, president of Lipow Oil Associates.

Softening American demand is also weighing on prices, with rising crude and fuel inventories pointing to a relatively subdued consumption outlook, said Sugandha Sachdeva, founder of SS Wealth Street, a New Delhi-based research firm. American crude and fuel inventories rose last week, driven by softer refined-product demand and a jump in oil imports, the government's Energy Information Administration said on Thursday.

Risks remain in the strait

Shipping risks persisted despite the price decline. Iran's military claimed on Thursday that four oil tankers had been hit by explosions in the Strait of Hormuz after ignoring warnings; those accounts could not immediately be independently verified. The Houthis said the same day that they attacked a pumping station on Saudi Arabia's East-West pipeline, an oil facility in Yanbu on the Red Sea and an Aramco building in Riyadh. Those are attributed wartime claims, distinct from the market's verified Friday settlement prices.