Oil set for sharp weekly drop but Middle East supply concerns provide floor

BEIJING, Nov 6 : Oil prices are set for a sharp weekly drop on expectations of a de-escalation of the Iran war after US President Donald Trump's party suffered election losses, but Middle East supply concerns from the conflict continue to provide a floor for the market.

Brent crude futures for January rose on Friday by $1.57, or 1.6 per cent, to $99.86 a barrel as of 0222 GMT. US West Texas Intermediate futures climbed $1.10, or 1.22 per cent to $91.62 a barrel. Both contracts gained for a second day.

Still, the Brent contract is on track to drop by 12 per cent this week after the December contract expired on October 30, while WTI is set to drop 12.1 per cent this week.

The contracts plunged earlier this week on expectations that US Congressional elections on Tuesday, which swung the Senate and House of Representatives to the Democrat party and from Trump's Republicans, could lead to a de-escalation of the US-Israeli war against Iran, now in its ninth month.

Oil prices fell 8 per cent on Wednesday alone after the Democrats swept the midterm elections, settling at two-month lows.

However, prices rebounded on a surge in tanker attacks on Wednesday and Thursday in the Gulf and the Strait of Hormuz — the crucial sea outlet for a majority of Middle Eastern oil shipments — that renewed the concerns about supply flows from the region.

"Crude oil rebounded as traders viewed Wednesday's selloff as overdone," said Daniel Hynes, senior commodity strategist at ANZ, in a note on Friday.

He said prices had been under pressure following the Democrat wins; however "the reality of the situation hit home" during Thursday's trading.

"Iran maintains control of the Strait of Hormuz and is unlikely to relinquish that control," he said, adding that overall flows through the Strait of Hormuz are under 60 per cent of capacity.

Iran said on Thursday that three more tankers had been attacked in the Strait of Hormuz, and data from UK maritime security agency UKMTO suggested that attacks on tankers are still running at close to record pace.