By Enes Tunagur
LONDON, Oct 16 (Reuters) - Oil prices eased on Friday but were heading for weekly gains on uncertainty over Middle East supplies and a larger-than-expected draw from US crude stockpiles, while European diesel margins dropped following the IEA's decision to release more diesel.
Brent crude futures were down 47 cents, or 0.44%, at $105.45 a barrel by 0747 GMT, while US West Texas Intermediate crude futures were down 62 cents, or 0.63%, to $97.35.
WTI settled up more than 3% on Thursday
after a big US crude stock draw on hurricane production shut-ins.
For this week so far, Brent has increased 0.72%, while WTI has jumped 5.9%.
"Uncertainty in the Middle East and concerns over the sustainability of oil flows through the Strait of Hormuz has the market pricing in a significant risk premium," ING analysts wrote in a note.
Some kind of agreement between the US and Iran was required to provide more confidence to the market that stronger oil flows from the region would continue, they added.
IRAN SAYS IT IS STEPPING UP STRIKES NEAR STRAIT OF HORMUZ
Supply jitters also increased as attacks around the Strait of Hormuz surged over the past 10 days, with Iran saying it was stepping up strikes in response to the US blockade of its ports and tougher sanctions introduced last month.
Total Hormuz clearance averaged 11.62 million barrels per day over the seven days to October 13, about 68% of the 17.15 million bpd baseline, said ship tracking firm Kpler.
European diesel refining margins declined by nearly 2% on Friday to $78.67 a barrel, after the International Energy Agency agreed on Thursday to release over 20 million barrels of diesel to the market.
Those margins rose as high as $95 a barrel in September as diesel supply tightened because of wars in Ukraine and Iran.
"Intensified Iranian attacks drove Gulf crude flows sharply lower," Kpler analysts said in a report on Thursday, adding that they expected a slower and more uneven Hormuz recovery in the absence of a comprehensive political deal.
The Houthis fired missiles at the presidential palace complex in the southern city of Aden on Thursday, killing two guards, while the Saudi-led coalition in Yemen detailed dozens of attacks on Saudi infrastructure in the escalating conflict.
The Trump administration is considering lifting sanctions on some so-called shadow fleet vessels that have carried oil and petroleum products from countries such as Russia, Iran and Venezuela, in a bid to cut record global freight rates, a US official said on Wednesday.
The discussions come days after President Donald Trump temporarily lifted sanctions on Russian diesel fuel, a move met with criticism from Ukrainian President Volodymyr Zelenskiy, European countries and some of Trump's fellow Republicans.
(Reporting by Sam Li in Beijing and Siyi Liu in Singapore; Editing by Clarence Fernandez and Jan Harvey)
