Oil prices settle lower amid Iraq drone attacks and more EU sanctions on Russia

Oil prices jumped on Friday but retreated to settle lower as mixed US economic data offset concerns over drone attacks against Opec member Iraq that raised supply concerns and after the EU approved more sanctions against Russia.

Brent, the benchmark for two thirds of the world's oil, closed 0.35 per cent lower at $69.28 a barrel. West Texas Intermediate, the gauge that tracks US crude, retreated 0.30 per cent to $67.34 a barrel. Intraday gains peaked at about 1.5 per cent.

Oil prices have trended upwards since May, peaking on June 19 after Israel attacked Iran, but they have fallen since then.

For the week, both benchmarks were down about 2 per cent. Year-to-date, Brent is down more than 6 per cent, while WTI has shed 7.8 per cent.

Conflicts in the Middle East have been among the main drivers of global oil market volatility in recent months, and the drone attacks in Iraq are part of the trend, Strikes on Iraqi crude centres have removed an estimated 140,000 to 150,000 barrels a day from global supply.

On Thursday, an explosive-laden drone struck an oilfield in the Iraq's semi-autonomous Kurdish region − the latest in a series of attacks this month. Another drone fell in a village outside Erbil, the capital of Kurdistan Region.

Futures “continued to find support in the supply disruptions in the Middle East … the market remains sensitive to geopolitical risks, with price movements contingent on the pace of production recovery”, said Li Xing, a financial markets strategist consultant at Cyprus-based broker Exness.

Demand, however, has been reinforced by growing global consumption and seasonal factors, including increased summer travel in the Northern Hemisphere and higher refinery activity in Asia, but this strength “could wane as the summer ends, potentially limiting further price appreciation”, Ms Li added.

Meanwhile, the EU on Friday approved more sanctions on Russia over its war with Ukraine, targeting its banking and oil sectors.

This latest instalment of curbs include, in particular, restrictions on fuel products made from Russian petroleum and a revised oil price cap that is now set at 15 per cent below market rates. It would also affect a fleet of ships that transport Russian oil, in addition to cutting off Russian banks from the Swift international payment network.

The sanctions are aimed at curbing Russia's energy sector, which is a leading revenue stream for the world's third-biggest producer of crude oil and, along with Saudi Arabia, leaders of the Opec+ alliance of oil producing nations.

This revised oil price cap “has been specifically designed to further reduce Russia's revenue, while keeping global energy markets stable through continued supplies”, said the European Commission.

However, US economic data released on Friday offset these concerns. Government data showed that while US economic sentiment rose in early July, expectations for inflation targets continued to drop.

Also, homebuilding, home purchases and residential investment all dropped in June, amid uncertainty in the world's largest economy.

In addition, while supply concerns amid continuing trade geopolitical uncertainties continue to support prices, Opec has also raised its forecast for world oil and energy demand for the medium and long term.

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The producers' group, however, has cut oil demand projections for the next four years on account of economic slowdown in China, the world's second largest economy and leading crude importer.

Global oil demand is projected to expand by nearly 19 per cent to reach 123 million barrels a day by 2050, Opec said in its latest World Oil Outlook 2050 report.

In the medium term, oil demand is projected to increase by 9 per cent to 113.3 million bpd by 2030, from 103.7 million bpd in 2024.

Overall energy demand in the long term is expected to increase by 23 per cent to reach 378 million barrels of oil equivalent per day by 2050, the oil production group said.

However, it reduced its oil demand forecast for next four years over concerns of Chinese demand.