Oil rebounds on Mideast tensions but set for weekly loss

Source: StreetInsider.com

LONDON (Reuters) -Oil rose on Friday as heightened tensions in the Middle East raised the risk of supply disruptions from the oil-producing region, although the market is set for a weekly loss on expectations of fewer U.S. interest rate cuts this year.

Concern that Iran might retaliate for an attack on Monday by suspected Israeli warplanes on Iran's embassy in Damascus has supported oil near a six-month high this week, despite dampening factors such as rising U.S. inventories.

"The geopolitical premium is all about the rumour and not the fact," said Tamas Varga of oil broker PVM.

Brent crude futures climbed 66 cents, or 0.7%, to $90.40 a barrel by 0822 GMT, while U.S. West Texas Intermediate crude futures rose 90 cents, or 1.1%, to $85.92.

Prices pared gains after the International Energy Agency cut its forecast for 2024 world oil demand growth and predicted a further slowdown in 2025. Oil was set for a weekly fall as Brent and WTI headed for a roughly 1% decline.

The U.S. expects an attack by Iran against Israel but one that would not be big enough to draw Washington into war, according to a U.S. official. Iranian sources said that Tehran has signalled a response aimed at avoiding major escalation.

ING analysts said they expect a pullback in oil's rally if there is no further escalation in the Middle East or supply disruptions.

"We maintain our forecast for Brent to average $87 a barrel over the second quarter of this year," the ING analysts added.

Friday's gains erased the losses from the previous session, which was dominated by worries about stubborn U.S. inflation that dampened hopes for an interest rate cut as early as June.

U.S. Federal Reserve officials signalled on Thursday that there was no rush to cut interest rates as U.S. inflation persisted.

(Additional reporting by Katya Golubkova in Tokyo and Jeslyn Lerh in Singapore; Editing by Barbara Lewis)