Oil prices edged higher on Friday and were on track to record a weekly gain driven by concerns about Middle East supply disruptions, despite signs of weakening demand in some markets.

Brent, the benchmark for two thirds of the world's oil, was up 0.27 per cent at $74.58 a barrel at 11.44am UAE time. West Texas Intermediate, the gauge that tracks US crude, was trading 0.26 per cent higher at $70.37 a barrel.

“While oil bulls may not be in peak form lately, risks tend to lean to the upside heading into weekends due to the potential for an escalation in the Middle East conflict,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

Traders are waiting for Israel's response to the October 1 Iranian missile strikes, concerned that a potential retaliation targeting Iranian oil facilities could disrupt the global supply.

However, some reports indicate that Israel will most likely focus on striking Iranian military assets rather than nuclear or oil facilities.

“Should Israel’s expected reprisal attacks on its territory avoid nuclear and/or energy infrastructure, traders may price out what’s left of today’s geopolitical risk premium,” said Ehsan Khoman, head of commodities, ESG and emerging markets research at MUFG.

“This will leave not much in the way of price support given the risks of oversupply in 2025 coming into view,” Mr Khoman said in a research note on Thursday.

Earlier this month, the International Energy Agency said that the oil market would be faced with a “sizeable” surplus next year in the absence of a major disruption.

Non-Opec+ oil supply, driven by the Americas, is set to rise by 1.5 million barrels per day this year and next, with the US, Brazil, Guyana, and Canada contributing over 1 million bpd annually, the agency said in its oil market report.

Oil’s gains were limited this week by a larger-than-expected expansion in US crude stocks. US crude inventories, an indicator of the fuel demand in the world’s largest oil-consuming country, grew by 5.5 million barrels to 426 million barrels in the week that ended on October 18, according to the US Energy Information Administration. Analysts polled by Reuters were only expecting an increase of 270,000 barrels.

Investors are also paying close attention to the Chinese government's attempts to stimulate economic growth. China's crude consumption has shown signs of decline in recent months, which analysts attribute to both a slowing economy and a long-term shift toward the use of electric vehicles.

The country has announced several stimulus measures this year to address slowing manufacturing, a property market downturn, and rising unemployment.

China's central bank recently announced its biggest economic stimulus scheme since the Covid-19 pandemic. It included lowering interest rates, reducing mortgage rates for existing homeowners, and a major cash injection into the economy.

“Demand is stagnating in the Western world and also in China, while supply swells incrementally in the Americas,” said Norbert Rucker, head of economics and next-generation research at Julius Baer.

“[Opec+] will eventually revive parts of their ample spare capacity due to their unwillingness to structurally cease market share,” Mr Rucker said.

In September, the producer alliance extended voluntary oil output cuts of 2.2 million bpd until the end of November amid a drop in crude prices on concerns of slumping demand.