Geopolitical risks in the Middle East have cooled, and the oil market is changing rapidly! Analysis of market dynamics this week!

Oil prices rose slightly on Friday (April 19), but their weekly performance recorded their biggest decline since February. Iran has previously played down alleged Israeli attacks on its territory, a development that could signal an averting of an escalation of hostilities in the Middle East.

Brent crude oil futures rose 0.37% to $86.61 per barrel. WTI May crude oil futures rose 0.15% to close at $82.23 per barrel.

(Brent crude oil futures trend chart, source: Yihuitong)

(U.S. West Texas Intermediate (WTI) crude oil futures trend chart, source: Yihuitong)

At the beginning of the session, the prices of the two major crude oil benchmarks rose sharply by more than 3 US dollars. This was due to explosions in the Iranian city of Isfahan. Some sources pointed out that this was an attack launched by Israel. However, gains gradually narrowed as Tehran downplayed the incident and said it did not plan to retaliate.

Economist Tim Snyder of Matador Economics believes that this event was more like a bluff show, so the market quickly fell back after a short surge. Investors have been closely watching Israel's response to Iran's drone and missile strikes on April 13.

Meanwhile, U.S. lawmakers added sanctions on Iranian oil exports in a proposed Ukraine aid package after Tehran launched an attack on Israel over the weekend.

Brent crude oil prices have risen about 13% this year, with gains driven mainly by worsening hostilities in the Middle East and a tightening of the market due to OPEC+ production cuts. If energy prices continue to rise, it will increase risks to the global economy and pose a challenge to central bankers seeking to curb inflation.

Oil prices have fallen about 3% since Monday as oil risk premiums gradually recede. Both benchmarks posted their biggest weekly losses since February. However, investors did not rule out the possibility that tensions in the Middle East could disrupt supplies. The Middle East accounts for about one-third of global crude oil supplies.

Jorge Leon, senior vice president of oil market research at Rystad Energy, said in a note that analysis suggests a fair market value of $83 per barrel based on fundamentals, suggesting the current premium is attributable to geopolitical concerns. Oil markets are likely to remain volatile in the near term due to these geopolitical factors.

OPEC+ members, led by Saudi Arabia and Russia, agreed last month to extend voluntary production cuts of 2.2 million barrels per day until the end of June. This helps keep oil prices high. Analysts at Goldman Sachs and Commerzbank on Friday raised their Brent crude forecasts, taking into account geopolitical tensions and the prospect of demand growth and supply constraints from the Organization of the Petroleum Exporting Countries and its allies (OPEC+).

The International Monetary Fund expects OPEC+ to increase oil production starting in July, media reported on Friday.

UBS analyst Giovanni Staunovo said oil demand is growing healthily but supply should be constrained due to the extension of OPEC+ voluntary production cuts.

Data in Friday's closely watched report said the number of oil and gas rigs rigged, an early indicator of future production, rose by two to 619 in the week to April 19.