Oil edged higher to $73 a barrel on May 16, supported by a host of supply cuts and concern of further disruption to Middle East shipments as tensions rise, and was heading for a weekly gain.
US sanctions on Iran have cut the OPEC member’s crude exports further in May, adding to supply curbs resulting from an OPEC-led pact. Meanwhile, rising tension in the Middle East this week has raised concern about additional supply disruption.
Brent crude was up 43 cents to $73.05 a barrel at 1101 GMT. The global benchmark is up about 3 percent this week, having ended last week steady and fallen the week before. US West Texas Intermediate crudeÂ added 60 cents to $63.47.
“The Middle East is acting as a tinderbox for conflict,” said Stephen Brennock of oil broker PVM. “So long as this remains the case, the energy complex will continue to be supported by bullish supply-side signals.”
The mounting tension overshadowed bearish developments for oil prices this week, such as an unexpected increase in US crude inventories.
A Saudi-led military coalition in Yemen carried out several air strikes on the Houthi-held capital Sanaa on Thursday after the Iranian-aligned movement claimed responsibility for drone attacks on two Saudi oil pumping stations.
Earlier this week, staff were evacuated from the US embassy in Baghdad, while US President Donald Trump ordered the deployment of an aircraft carrier group, B-52 bombers and Patriot missiles to the Middle East.
“When tensions are this high, with the US deploying a sizable military force, even a mistake or a tactical error by Iran could ignite the Middle East powder keg,” Stephen Innes, head of trading and market strategy at SPI Asset Management, told Reuters by email.
“There are lots of supply risks with tensions this high.”
Besides the drop in Iranian exports, Russian shipments have been disrupted and the North Sea – home to the crude underpinning Brent futures – is seeing tighter supply due to oilfield maintenance and outages.
The market is also awaiting a decision from the Organization of the Petroleum Exporting Countries (OPEC) and other producers over whether to continue with supply cuts that have boosted prices more than 30% so far this year.
A meeting of an OPEC-led ministerial committee in Saudi Arabia this weekend will assess member states’ commitment to their deal reducing oil production and may make a recommendation on whether to extend or adjust the pact.