Oil rises after US Navy downs Iranian drone; set for weekly fall

Oilprices rose on Friday as tensions spiked again in the Middle Eastafterthe United States said it had destroyed anIraniandronein the Strait of Hormuz, a major chokepoint for global crude flows.

Benchmark crude prices were still on track for their biggestweeklydecline in seven weeks, however, havingfallen sharply earlier in the week on concerns over globaloildemand amid slowing economic growth.

Brent crude futures were up 1.11 cents, or 1.78%, at $63.04 a barrel by 1037 GMT, having risen as high as $63.32. Brent fell 2.7% on Thursday, its fourth straight session of losses, and wassetfor aweeklydrop of around 5%.

West Texas Intermediate crude futures were 81 cents, or 1.44%, higher at $56.11 per barrelaftertouching $56.36. They ended 2.6% lower in the previous session and were headed for aweeklydecline of around 6%.

Indications that theUS Federal Reserve will cut rates aggressively to support the economy were also behind Friday's gains, said Stephen Innes, managing partner at Vanguard Markets.

"The Fed backstop and the report of theUSNavyshooting down anIraniandroneare providing a modicum of support foroilmarkets amidst a very bearish landscape," he said.

The United States said on Thursday that aUSNavyship had "destroyed" anIraniandronein the Strait of Hormuzafterthe aircraft threatened the vessel, but Iran said it had no information about losing adrone.

Also on Thursday, two influential Federal Reserve officials sharpened the public case for acting to support theUS economy, reviving bets the central bank may deliver a larger-than-expected cut this month.

Still, the longer-term outlook foroilhas grown increasingly bearish.

The International Energy Agency (IEA) is reducing its 2019oildemand growth forecast to 1.1 million barrels per day (BPD) from 1.2 million BPD previously due to a slowing global economy amid aUS-China trade spat, it's executive director said on Thursday.

The IEA may cut further if the global economy and especially China show further weakness, Fatih Birol told Reuters.

"Macro-economic concerns, uncertainty on trade discussions and increasingoilsupply from theUS continued to weigh on sentiments," said Warren Patterson, head of commodities at ING.

Bank of America Merrill Lynch said any start ofUS-Iran talks or aUS-China trade deal would reduce volatility and anchor Brentoilprices in a $60-$67 per barrel range.