Investing.com -- Oil prices snapped a two-week wining streak despite settling higher Friday, as reports that Israel is bracing for a potential attract from Iran that could come as soon as this weekend, kept geopolitical tensions and the potential for supply disruptions in focus.
By 14:30 ET (18.30 GMT), the U.S. crude futures traded 0.75% higher at $85.66 a barrel and the Brent contract climbed 0.5% to $90.20 a barrel. Oil prices, which had traded sharply higher earlier in the day before pairing some gains, snapped a two-week win streak following big losses earlier this week as concerns about higher inflation dented hopes for a June Federal Reserve rate cut.
Middle East tensions rise
U.S. officials have predicted an attack by Iran against Israel, possibly over the weekend, in retaliation for a suspected Israeli air strike against a top Iranian military commander in Damascus earlier this week.
"I can't speak to the size, scale, scope of what that attack might look like," US National Security Council spokesman John Kirby (NYSE:KEX) said on Friday, though added that the threat was "viable."
But fears that an all out war could break out in the Middle East were cooled after the Financial Times reported that Iran is considering a retaliatory strike in a "calibrated" manner against Israel, suggested the Islamic Republic's isn't seeking major confrontation with Israel.
The risk that Iran, the third-largest producer in the Organization of the Petroleum Exporting Countries and a major backing of Hamas in its conflict with Israel in Gaza, will be dragged into the battle, sparking a wider war in the Middle East has added to bets of crude supplies disruptions in the region.
“The risk of a geopolitical event occurring during the weekend is once again lifting the risk premium ahead of the weekend only to drop again on Monday," said Saxo Bank's Ole Hansen.
Baker Huges rig count slips; IEA cuts oil growth forecast
The number of oil rigs operating in the U.S. fell by 2 to 506, according to data from energy services firm Baker Hughes, pointing to further signs that the jump in oil prices is yet to meaningfully encourage drillers to step up activity amid concerns about demand.
The International Energy Agency cut its forecast for oil demand growth this year, by around 100,000 barrels per day to 1.2 million barrels per day, in its latest monthly report, released earlier Friday.
The global energy watchdog also said that it expected the pace of expansion to decelerate even further to 1.1 million barrels per day next year “as the post-Covid 19 rebound has run its course.”
Pullback is a possibility
If the threat of a disruption to global supplies doesn’t materialize, the bears will likely emerge from hiding in the second half of the year, according to Macquarie.
"We expect oil to turn bearish as the year progresses due to NOPEC supply growth, a material amount of OPEC+ spare capacity reentering the market, and the potential that continuing inflation softens demand," analysts at Macquarie said in a note.
The threat of supply disruptions from geopolitical tensions is enough in the near-term, however, to support oil prices, but "without an actual supply disruption associated with geopolitical events, Brent oil will struggle to hold above $90 a barrel in the second half of the year," Macquarie added.
(Peter Nurse contributed to this report.)