Oil Prices Set for Steep Weekly Decline Despite Ceasefire, Supply Concerns Ease

Oil prices edged higher on Friday, but remained on track for their largest weekly decline since March 2023, as market concerns over supply disruptions from the Israel-Iran conflict dissipated. The absence of significant impact on global oil flows led to the evaporation of any risk premium that had previously supported the market.

At 0429 GMT, Brent crude futures rose 35 cents, or 0.52%, to $68.08 a barrel, while U.S. West Texas Intermediate (WTI) crude gained 40 cents, or 0.61%, to $65.64. Despite the uptick, both benchmarks were poised to fall by approximately 12% for the week, bringing them back to levels seen before the conflict escalated on June 13, when Israel fired missiles at Iranian military and nuclear targets.

The week began with a spike in prices, hitting a five-month high following the U.S. attack on Iranian nuclear sites. However, prices quickly tumbled to their lowest levels in over a week on Tuesday when U.S. President Donald Trump announced a ceasefire between Israel and Iran. Traders and analysts now believe that the crisis has had little to no impact on oil supply, leading to a stabilization in the market.

Macquarie analysts noted that, “absent the threat of significant supply disruption, we still view oil as fundamentally oversupplied,” with their 2025 forecast indicating a surplus of approximately 2.1 million barrels per day. Consequently, they forecast WTI to average around $67 a barrel for 2025, raising their prediction by $2 due to the temporary geopolitical risk premium.

Despite the broader market softness, small gains were seen later in the week, spurred by data showing a decline in U.S. crude oil and fuel inventories, alongside rising refining activity and demand. The U.S. Energy Information Administration (EIA) reported that inventories had fallen in the previous week, signaling tighter supply in the world’s largest oil consumer.

Phil Flynn, senior analyst at Price Futures Group, commented on the situation, saying, “The market is starting to digest the fact that crude oil inventories are very tight all of a sudden,” which lent some support to prices. Additionally, a Wall Street Journal report on Thursday indicating that President Trump might choose the next Federal Reserve chair earlier than usual fueled expectations for U.S. interest rate cuts, further bolstering the outlook for oil demand.

In summary, while oil prices rebounded slightly at the end of the week, the overall sentiment remains subdued due to the absence of major disruptions in supply, with traders now adjusting their expectations for the remainder of 2023.