Oil prices head for weekly rise on Middle East escalation

By Seher Dareen

LONDON, July 24 (Reuters) - Oil futures prices retreated on Friday but are still set for hefty weekly gains because of concerns about disrupted energy flows in the Red Sea and fears of further escalation in the U.S.-Israeli war with Iran. 

Brent futures fell $1.82, or 1.81%, to $98.87 a barrel at 0747 GMT, having settled up 7% above $100 in the previous session for the first time since May after Iran-aligned Houthis said they struck two Saudi oil tankers in the Red Sea.

The contract remained on course for a 12% advance this week. 

West Texas Intermediate (WTI) futures were down $1.60 or 1.74% at $90.59 a barrel, on track for a 9.7% weekly rise.

"Major hubs of oil production or supply routes are surrounded by war," said PVM Oil Associates analyst John Evans. "The short-term outlook is bullish." . 

U.S. President Donald Trump promised "major military punishment" for Iran and its Houthi allies after the strikes in the Red Sea. 

Iran had been pressing the Houthis to close the Bab el-Mandeb gateway to the Red Sea if the U.S. continued to attack Iranian power infrastructure. It is the second most important route for energy shipments after the Strait of Hormuz at the mouth of the Gulf.

Additionally, the Houthis had declared on Monday that they were imposing a naval blockade on Saudi Arabia, which had been diverting its oil via pipeline to get around Iran's closure of the Strait of Hormuz.

The number of tankers crossing through the Strait of Hormuz fell to just one on Thursday, the lowest since May 7, according to ship-tracking data from Kpler, an analytics firm. 

Analysts at JPMorgan said in a note that each additional month of disruption to oil supply would add around $7 to $8 a barrel to Brent, lifting monthly average prices to around $114 a barrel if disruptions extend to three months.

Elsewhere, Russia said on Friday that its forces had struck three Ukrainian ports overnight targeting infrastructure — including loading and unloading facilities and fuel reserves — which supported Kyiv's armed forces.

On Thursday, Kazakhstan's energy ministry said oil companies temporarily reduced production after suspected Ukrainian drone attacks forced the country's main Black Sea export terminal to close. 

(Reporting by Colleen Howe in Beijing and Siyi Liu in Singapore; Editing by Kevin Buckland, Thomas Derpinghaus and Tomasz Janowski)