Oil prices edged higher during Friday's Asian deals as renewed concerns over supply disruptions in Saudi Arabia and severely restricted tanker traffic through the Strait of Hormuz kept markets on edge.
Despite the gains, crude benchmarks remained on track for steep weekly losses as investors weighed the impact of a fragile ceasefire between the United States and Iran, alongside signs of potential diplomatic progress in the region.
By 2:45 pm AEST (4:45 am GMT), Brent crude futures rose $0.52, or 0.5%, to $96.44 per barrel, while West Texas Intermediate futures gained $0.36, or 0.4%, to $98.23 per barrel.
However, both contracts have declined sharply over the week, with Brent down 11.5% and WTI off by 11.8%.
Fresh supply concerns emerged after reports that attacks on Saudi energy infrastructure had significantly curtailed output. According to reporting from The Business Times, strikes reduced production capacity by around 600,000 barrels per day and cut throughput on the East-West Pipeline by approximately 700,000 bpd.
Meanwhile, shipping activity through the Strait of Hormuz remained severely constrained, operating at less than 10% of normal volumes despite the ceasefire agreement.
Iran has continued to assert control over the waterway, warning vessels to adhere strictly to its territorial routes.
The ceasefire, brokered earlier this week with mediation from Pakistan, has yet to fully stabilise the region, amid reports of continued hostilities following the agreement.
Analysts at ANZ cautioned in a note to clients yesterday that any recovery in supply is likely to be gradual and uneven.
“The key issue is not whether supply can recover but how much and how quickly. Under a constructive security scenario, we judge that only partial recovery is feasible in the near term.
"Across major Middle East and sanctioned producers, at best 2–3mb/d could return within the first month, largely via the restart of curtailed exports and the re-routing of shipments.
"An additional 2–3.5mb/d may be recoverable over the remainder of Q2, assuming sustained improvement in security conditions and no further escalation. However, operational friction, damaged infrastructure and export bottlenecks mean recovery is unlikely to be smooth.
"Importantly, we cannot assume not all disrupted supply will return. We see a credible risk that 1–2mb/d of capacity may be permanently lost or limited, particularly from mature fields, constrained export systems and producers facing persistent sanctions or financing challenges.
"This implies not only a tighter near-term balance, but also a higher long-run clearing price and increased volatility.”
Market participants are also watching diplomatic developments closely. Israel has indicated it is ready to begin talks with Lebanon, raising hopes of broader de-escalation across the region.
However, uncertainty persists over the future of shipping through the Strait of Hormuz. Iran has proposed charging fees for vessels transiting the waterway under a potential peace agreement, a move that has drawn resistance from Western governments and international shipping authorities.
In response to supply risks, Japan said it plans to release 20 days’ worth of oil reserves starting in May to stabilise domestic supply, while seeking alternative import routes that bypass the Strait of Hormuz.
Reporting from Bloomberg also suggested that China has authorised state refiners to tap commercial oil inventories as the conflict drags on.
Major firms including Sinopec and China National Petroleum are expected to access stored supplies to offset potential shortages.
