Photo caption: Oil tankers pass through the Strait of Hormuz, December 21, 2018. REUTERS/Hamad I Mohammed Purchase Licensing Rights
*Benchmarks head for weekly losses of about 9%
*Cargo vessels could face fees under Iran draft plan
*Drone attacks reduce July CPC oil loadings by a fifth, sources say
Oil prices gained on Friday as markets assessed a pending agreement between Iran and Oman that would set rules for transit of the Strait of Hormuz.
Reuters reported that Brent crude futures were up 93 cents, or 1.14%, at $83.42 a barrel at 1:14 p.m. CDT (1814 GMT). West Texas Intermediate futures rose 96 cents, or 1.24%, to $78.25.
Oil futures had settled more than $3 a barrel higher on Thursday as Iran reviewed a bill to ban U.S. and Israeli vessels from the Strait of Hormuz, through which roughly a fifth of the world’s oil and liquefied natural gas normally passed before the war began at the end of February.
Oil prices fell earlier in the week as a possible solution to the conflict looked more likely, and both benchmarks are on course for a weekly loss of more than 9%.
“The market is trying to assess if an Iran-Oman agreement would allow a U.S.-flagged vessel to transit the Strait of Hormuz,” said Andrew Lipow, president of Lipow Oil Associates. “Would it allow a U.S.-owned vessel to go through? Would it allow a vessel headed for a U.S. port to go through?”
Both Iran and Oman are said to have agreed on the route ships would take through the strait, which lies between their two countries.
The oil market is also trying to determine how long it might take to end the 5-month-old war between the U.S., Israel and Iran, Lipow said.
“The longer the supply disruption goes, the longer world’s commercial reserves are being drawn down,” he said.
Analysts also said that this week’s developments have signalled that hostilities between Iran and the U.S. are not yet over.
Iran is seeking fees of between 5% and 7% of the price of cargoes from ships using the strait, a senior Iranian official said. Oman, meanwhile, is discussing fees of about 3% while Washington wants no fees at all.
Four industry sources have said the proposed deal is not easily workable because of U.S. sanctions and restrictive insurance clauses on any payments.
“The structure of the Iran-Oman agreement in its current form and the power it yields to Iran is nothing that (U.S. President Donald) Trump can accept politically,” said Bjarne Schieldrop at SEB Research. “Trump would face heavy political criticism at home if he did.”
While this week’s signals on a potential deal have driven a roller-coaster ride in market sentiment, the market remains in the dark as to what needs to happen for the agreement to be clinched, said Vandana Hari, founder of oil market analysis provider Vanda Insights.
Meanwhile, Saudi Arabia expects imminent coordinated attacks from Iraqi militias north of the Gulf state and from Yemen’s Houthis from the south under the supervision of Iran’s Islamic Revolutionary Guard Corps, a senior Saudi official said.
The official, speaking on condition of anonymity, said late on Thursday that intelligence reports from Saudi Arabia, the United States and other regional countries indicated civilian and economic sites could be targeted, including energy infrastructure, ports and airports.
Yemen’s Iran-aligned Houthis said they carried out missile and drone attacks on Saudi deployments in Marib and Hadramout in Yemen on Thursday.
Saudi Arabia, Pakistan and Turkey signed a joint defence agreement in Mecca on Friday, uniting Sunni Muslim U.S. allies alarmed at a regional conflagration that has rained missile fire onto Gulf oil exporters.
Trump told reporters on Thursday that he believed that the war would be over soon.
Meanwhile, drone attacks in the Black Sea took out as much as a fifth of Caspian Pipeline Consortium (CPC) oil loadings in July, four sources familiar with the data said, as the Russia-Ukraine war spilled over to hit Kazakhstan’s and Western oil majors’ sales.
