Oil prices set for third straight weekly gain on supply concerns

Oil prices rose on Friday and were on track for a third straight week of gains as traders focused on potential supply disruptions from sanctions while icy conditions in parts of the US and Europe are expected to drive up fuel demand.

Brent crude futures gained $1.06 or 1.4 per cent, to $77.98 a barrel by 0904 GMT, while West Texas Intermediate (WTI) crude futures advanced $1.04 or 1.4 per cent to $74.96.

Over the three weeks ending January 10, Brent has climbed by close to 7 per cent, while WTI has jumped nearly 8 per cent.

“There are several drivers today. In the short term, the weather is very cold across the US, driving up demand for fuels. In the long term, the market is focused on the prospect of additional sanctions, especially against Iran,” said Ole Hansen, head of commodity strategy at Saxo Bank.

The US Weather Bureau expects central and eastern parts of the country to experience below-average temperatures. Many regions in Europe have also been hit by extreme cold and they are likely to continue to experience a colder-than-usual start to the year, which JPMorgan analysts expect to boost demand.

“We anticipate a significant year-over-year increase in global oil demand of 1.6 million barrels a day in the first quarter of 2025, primarily boosted by … demand for heating oil, kerosene and LPG,” they said in a note on Friday.

Ahead of US President-elect Donald Trump’s inauguration on January 20, concerns are mounting over potential supply disruptions from tightening sanctions against Iran and Russia while oil stockpiles remain low.

This could materialise even earlier, with US President Joe Biden expected to announce new sanctions targeting Russia’s economy to bolster Ukraine’s war effort against Moscow before Trump takes office. A key target of sanctions so far has been Russia’s oil industry.

Meanwhile, the premium on the front-month Brent contract over the six-month contract reached its widest since August this week, potentially indicating supply tightness at a time of rising demand.

Inflation worries are also delivering a boost to crude oil prices, said Saxo Bank’s Hansen. Investors are growing concerned about Trump’s planned tariffs, which could drive inflation higher. A popular trade to hedge against rising consumer prices is through buying oil futures.

Oil prices have rallied despite the US dollar strengthening for six straight weeks, making crude oil more expensive outside the US.

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