By Barani Krishnan
Investing.com - Oil clinched its best week in 2-1/2 years on Friday, rising more than 9% on the week, as bulls kept up the rally in crude despite President Donald Trump’s about-turn on a military response to Iran.
New York-traded West Texas Intermediate crude settled up 36 cents, or 0.6%, at 57.43 a barrel. Combined with Thursday’s 5.5% rally and earlier gains, WTI finished the week up 9.4%. Its last-best finish was up 12.2% in the week to Nov. 27, 2016.
London-traded Brent crude, the benchmark for oil outside of the U.S., was up 74 cents, or 1.2%, at $65.19 per barrel by 2:50 PM ET (18:50 GMT). Brent gained more than 5% on the week, its most since the week ended Feb. 15.
Crude has staged a dramatic turnaround in the past 48 hours after Tehran’s Islamic Revolutionary Guard Corps said it shot down the U.S. RQ-4A Global Hawk surveillance drone, which it accused of incursion and spying over Iranian airspace. The Pentagon said that the aircraft, flying automatically and without a pilot, was in international airspace when it was targeted.
The drone was brought down not far from the congested and narrow Strait of Hormuz, used regularly by oil tankers and which Iran has threatened to block amid its showdown with the U.S.
Trump added to the fervor of the crude rally on Thursday when his first response to the drone matter was a tweet that simply said: “Iran made a very big mistake!” Yet, less than two hours later, the president clarified that he was referring to the the actions of a “stupid” individual Iranian general who made a “foolish” unintentional mistake.
Trump tweeted today that he was close to ordering a missile strike on Iran, but decided it was not proportional.
“In view of the 2020 elections, President Trump is facing a formidable challenge to address the military provocations of Iran, while avoiding a spike in gasoline prices and a correction of the stock market,” said Olivier Jakob of the PetroMatrix consultancy in Zug, Switzerland.
“The S&P 500 has been saved by the U.S. Federal Reserve, but the global economy is still suffering from the trade war and would be at risk of more suffering in a war over the Strait of Hormuz," Jakob said. "However, this also means that large macro books need to have some oil length as a hedge to equity length.”
Oil bulls who chose to ignore the president’s apparent u-turn on Iran, instead cited a rejuvenated outlook for crude.
“The death of oil demand is greatly exaggerated,” said Phil Flynn, senior market analyst at The Price Futures Group brokerage in Chicago. “All the doom and gloom over demand based on short term economic numbers masks the fact that things are not that bad.”
Crude’s rally could extend into the coming week if the U.S. Energy Information Administration issues another strong dataset on crude stockpiles and gasoline demand like last week.
The market could also see a sharp upside if Trump and his team hold, as he has promised, positive talks with China’s President Xi Jinping and negotiators from Beijing at the G20 meeting next weekend.
The never-ending mantra of production cuts by OPEC oil ministers as they head for their July 1-2 meeting in Vienna and more saber-rattling on Iran are among other things that could sprinkle some magic dust on the market.