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UPDATE 2-Oil slips, but still propelled to gain for week as MidEast tensions grow

Roslan Khasawneh and Aaron Sheldrick

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* Crude prices slip after big gains in previous session

* MidEast tensions, improved demand outlook propping prices

* Slowing Russia, U.S. output support: https://tmsnrt.rs/2WsW5gq

* Brent set for near 4% weekly gain, WTI set for 8% increase (Adds analyst quote, updates prices)

SINGAPORE/TOKYO, June 21 (Reuters) - Oil prices reversed earlier gains on Friday but benchmark Brent crude was still set for its first weekly gain in five weeks amid rising tensions in the Middle East and on hopes for a drop in U.S. interest rates that may stimulate global growth.

Brent crude was down 20 cents, or 0.31%, at $64.25 a barrel by 0630 GMT. The global benchmark jumped 4.3% on Thursday, leaving it set for a weekly gain of almost 4%.

U.S. West Texas Intermediate crude was down 16 cents, or 0.28%, at $56.90 a barrel. But the U.S. benchmark surged 5.4% on Thursday and is on track for a more than 8% increase this week.

"The recent ups and downs in oil pricing indeed reflect the unsteady state in the oil markets (given) rising geopolitical tensions...and concerns of slowing oil demand due to trade conflicts," said Victor Shum, Singapore-based vice president of energy consulting at IHS Markit.

U.S. President Donald Trump initially played down Iran's downing of a U.S. military drone earlier this week. But reports on Friday said Trump had approved strikes against Iran before pulling back, raising concerns about crucial oil supplies being disrupted after the tanker attacks last week.

"There is no doubt that a severe disruption to the transit of oil through this vulnerable route would be extremely serious," said consultancy FGE Energy in a note.

Tension has been rising in the Middle East, home to over 20% of the world's oil output, after attacks on two tankers near the Strait of Hormuz, a choke point for oil supplies.

Washington blamed Tehran for the tanker attacks. Iran denied any role.

The demand-side outlook has also improved, with expectations that the U.S. Federal Reserve may cut interest rates at its next meeting.

Potential supply "disruptions have boosted energy prices combined with the dollar weakness after the Fed signaled an interest rate is near," Alfonso Esparza, senior market analyst at OANDA, said in a note.

A weaker greenback tends to support oil prices because crude is usually priced in dollars.

Another macroeconomic factor supporting prices is the plan by Beijing and Washington to resume talks to resolve a trade tariff war that has hit economic growth prospects.

"Trade anxiety has died down, pushing energy prices higher as global growth will not be pressured by a prolonged tariff war," Esparza said.

Concern about slowing economic growth and a U.S.-China trade dispute had pulled oil lower in recent weeks. That came after Brent reached a 2019-high above $75 in April.

(Reporting by Roslan Khasawneh in SINGAPORE and Aaron Sheldrick in TOKYO; Editing by Joseph Radford)