Oil prices little changed as US-Iran peace efforts hold

By Amanda Stephenson and Robert Harvey

CALGARY and LONDON, July 3 (Reuters) - Oil prices ticked slightly higher on Friday but were little changed for the week as traders held on to hopes for ‌a successful outcome from attempts to secure peace between the U.S. and Iran.

Brent futures were up ‌25 cents, or 0.35%, at $72.05 a barrel by 10:50 a.m. ET. West Texas Intermediate was up 1 cent, or 0.01%, at $68.70 a barrel.

U.S. markets ​were closed ahead of the U.S. Independence Day holiday on Saturday.

On Thursday, the two oil benchmarks hit their lowest levels since before the U.S.-Israeli war on Iran began in late February.

Investor hopes for a full reopening of the Strait of Hormuz are being buoyed by peace talks between the U.S. and Iran, Commerzbank analysts said.

"The U.S.-Iran dealmaking process remains ‌fragile but continues for now, as the ⁠question of Strait of Hormuz tolls and administration remains contentious," Citi analysts wrote on Friday.

"We expect the MoU (memorandum of understanding) to hold, not because trust has suddenly emerged, but ⁠because the incentives to break are poor for both sides," Citi analysts said.

Some shipping has resumed through the Strait of Hormuz, as called for under the initial U.S.-Iranian deal, but uncertainty is high after the two countries exchanged strikes last weekend ​following an ​Iranian attack on a cargo ship.

With the prospect of being ​able to ship more oil, Gulf producers are ‌working to increase output.

Kuwait's oil production rose sharply to 1.65 million barrels per day in June, from 580,000 bpd in May, a source close to the matter told Reuters on Thursday.

At least five supertankers carrying a total of 10 million barrels of Saudi oil have left the Strait of Hormuz and Saudi Aramco has switched to spot pricing from longer-term contracts to speed sales in Asia, according to trade sources and shipping data.

"A sustained recovery in ‌crude prices is more likely to materialise once the oil ​currently stranded on tankers and held in storage has been absorbed by ​the market, and if the recovery in production ​proves insufficient to offset volumes transiting the Strait of Hormuz," PVM analyst Tamas Varga ‌said.

As the availability of supplies grows, the market structure ​has turned from backwardation to ​contango, reflecting decreasing expectation of future shortages.

"Overall, the recovery in Middle Eastern supply is outpacing our initial expectations while Chinese-depressed import demand remains weak," said Rory Johnston, founder of the Commodity Context newsletter.