Oil prices log weekly gains after Fed rate cut, rising Middle East tensions

By William Watts

Oil futures fell Friday but booked solid weekly gains, boosted by the Federal Reserve's decision to deliver a large interest-rate cut as well as a renewed rise in tensions in the Middle East after a series of pager and walkie-talkie explosions aimed at Hezbollah operatives in Lebanon.

Price moves

West Texas Intermediate crude for October delivery CL00 fell 3 cents, or less than 0.1%, to close at $71.92 a barrel on the New York Mercantile Exchange. The more actively traded November contract CLX24 fell 16 cents, or 0.2%, to $71 a barrel.November Brent crude BRN00 BRNX24, the global benchmark, dropped 39 cents, or 0.5%, to settle at $74.49 a barrel on ICE Futures Europe.October gasoline RBV24 fell 1.2% to close at $2.036 a gallon, while October heating oil HOV24 declined 0.5% to $2.162 a gallon.October natural gas NGV24 gained 3.7% to $2.434 per million British thermal units.

Market drivers

Brent rose 4% for the week and WTI advanced 4.8%, lifted by the Federal Reserve's decision Wednesday to cut its key interest rate by 50 basis points, or half a percentage point. Crude jumped in Thursday's session, alongside global equities, as worries over an economic hard landing abated.

Meanwhile, fears of a broader Middle East conflict that could threaten oil flows from the region also contributed to gains. Iran-backed Hezbollah blamed Israel for pager explosions across Lebanon on Tuesday that injured 2,800, including Iran's ambassador to Lebanon, and killed 12. That was followed Wednesday by explosions of walkie-talkies and other devices used by the group. Hezbollah has vowed to retaliate.

Israel on Friday said it killed a top Hezbollah commander and other senior military officials in a strike on Beirut. Lebanon's health ministry said the attack left at least 14 dead and 66 wounded, according to a Wall Street Journal report.

"Oil prices were boosted from two sides this week: On the one hand, the Fed cut its key interest rate more than many had expected, raising hopes that a sharp drop in oil demand in the largest market would be avoided," Barbara Lambrecht, commodity analyst at Commerzbank, said in a note.

"On the other hand, the situation in the Middle East has continued to escalate, causing the geopolitical risk premium to rise. No doubt, a further deterioration of the situation could push prices even higher," she said.

Iran remains the wild card, Helima Croft, head of global commodity strategy at RBC Capital Markets, said in a note.

Iran so far hasn't shown a desire to move the conflict out of its current "gray zone," she said, with the country benefiting financially from elevated oil sales and slack enforcement of energy sanctions.

"Tehran may indeed judge that it is in its best interest to bide its time and avoid a repeat of the April rocket attacks. Of course, the policy of strategic patience may not survive an Israeli ground invasion of Lebanon. We continue to highlight Lebanon as the main pathway to oil disruption through direct Iranian involvement in a wider regional war," Croft wrote.

Oil-field services firm Baker Hughes Co. (BKR) on Friday reported the U.S. oil-rig count was unchanged this week at 488.

-William Watts

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

09-20-24 1608ET

Copyright (c) 2024 Dow Jones & Company, Inc.