Singapore: Brent oil pared its biggest weekly increase in four months after President Donald Trump pulled back from retaliatory strikes on Iran for downing a US drone as tensions flare in the Middle East.

Futures erased gains in London on Friday after the US abandoned a military strike against Iran on Thursday night, but are still up 3.9 per cent for the week. Trump said earlier on Thursday it was hard to believe the downing of the drone in the Arabian Gulf was intentional, suggesting a “loose and stupid” individual may have been responsible. Hostility in the region has escalated recently with a missile strike by Yemeni rebels on Saudi Arabia and the attack on two tankers near the Strait of Hormuz, which the US blamed on Iran.

While crude has rallied on Mideast tensions, an entrenched US-China trade war has dented the demand outlook and weighed on prices over the past two months. Washington and Beijing are set to resume talks next week, providing a glimmer of hope for the global economy. The drone was shot down to send a “clear message” to the White House, an Iranian military officer said, according to a story published by Iranian state-run media on Thursday.

“Given this week’s escalation in drone, missile and rocket attacks across the Middle East, traders will be reluctant to go into the weekend holding any shorts,” said Vandana Hari, founder of Vanda Insights in Singapore. “If the situation appears to deteriorate through the day, expect more length to be stacked on.”

Brent for August settlement lost 4 cents to $64.41 a barrel on London’s ICE Futures Europe Exchange as of 7:52am in London after closing 4.3 per cent higher Thursday. Prices are heading for the first weekly gain since mid-May.

West Texas Intermediate for August delivery fell 11 cents to $56.96 a barrel on the New York Mercantile Exchange. The July contract, which expired Thursday, closed 5.4 per cent higher. Futures traded at a $7.41 discount to Brent.

The attack on Iranian targets, which would have included air strikes, was close to being carried out when it was stopped, according to a US administration official who was granted anonymity to discuss a national security matter. The official would not discuss whether the plan might be revived and it was not immediately known what prompted the decision to hold off.

While the US and Iranian officials argued whether the high-altitude drone was over international or Iranian waters when it was attacked and shot down, Trump said it might have been a “general or somebody who made a mistake by shooting that drone down.” It was the second time in a week that the American president sought to minimise Iranian actions against US interests.

Earlier this week, Trump called an attack on two oil tankers in the Gulf of Oman a minor issue, even as the Pentagon released images it said bolstered accusations Tehran was behind the assault. Saudi Arabia also blamed the attack on Iran, which has denied involvement in the incident.