Oil surges more than 1% in five days, continues gaining streak for second week; brent crude at $79/bbl

Oil prices closed lower on Friday but posted a second consecutive weekly gain as investors considered factors such as potential supply disruptions in the Middle East and the effects of Hurricane Milton on fuel demand in Florida.

Brent crude futures fell 36 cents, or 0.45%, to settle at $79.04 per barrel, while U.S. West Texas Intermediate (WTI) crude futures dropped 29 cents, or 0.38%, to $75.56 per barrel.

Despite the daily decline, both benchmarks gained over 1% for the week. Hedge funds and other money managers increased their net long positions in Brent crude by 123,226 contracts to 165,008 in the week ending October 8, according to data from the Intercontinental Exchange.

“Crude oil experienced significant volatility and extended its decline after U.S. crude oil inventories surged more than anticipated. According to the U.S. EIA, crude oil stocks rose by 5.8 million barrels last week, surpassing the expected increase of 2.0 million barrels. The dollar index also strengthened following the Federal Reserve’s monetary policy meeting minutes, which indicated that the Fed is not in a rush to implement aggressive interest rate cuts, further pressuring oil prices. However, geopolitical tensions in the Middle East and hopes of increased demand from China have provided some support for crude oil at lower levels,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

What's weighing on oil prices?

Crude oil prices have surged this month following Iran's launch of over 180 missiles at Israel on October 1, heightening concerns about potential retaliation targeting Iranian oil infrastructure. Israel has not yet responded.

However, Israeli Defense Minister Yoav Gallant stated that any response to Iran would be "lethal, precise, and unexpected."

Iran is supporting several groups engaged in conflict with Israel, including Hezbollah in Lebanon, Hamas in Gaza, and the Houthis in Yemen.

Meanwhile, Gulf states are urging Washington to prevent Israel from targeting Iran's oil facilities, fearing that Tehran's allies could retaliate by attacking their own oil infrastructure if tensions escalate, according to three Gulf sources cited by Reuters.

Additionally, Hurricane Milton moved into the Atlantic on Thursday after causing widespread destruction in Florida, resulting in at least 10 deaths and leaving millions without power.

Where's oil prices headed?

Yeap Jun Rong, a market strategist at IG, was quoted as saying by Reuters, that concerns about high crude inventories and the potential for a slower pace of monetary easing by the U.S. Federal Reserve have contributed to the recent pause in oil price gains.

On the supply side, Libya's National Oil Corporation (NOC) announced on Friday that it had restored oil production to pre-crisis levels, reaching 1.25 million barrels per day, following the country's central bank crisis.

Additionally, weaker third-quarter earnings for major oil companies may have dampened investor sentiment. BP (BP.L) reported on Friday that declining refining margins, driven by a slowdown in global fuel demand and weaker oil trading, could reduce its third-quarter profit by up to $600 million.