oil prices set for steep weekly drop despite supply concerns amid US-Venezuela tension

Oil prices were up on Friday morning over supply concerns amid mounting US military action in Venezuela, but remained on pace for a steep weekly decline of almost 4 per cent on fears of a glut.

The market remains cautiously optimistic over a potential peace deal between Russia and Ukraine.

Brent, the benchmark for two thirds of the world's crude, erased earlier gains and was down 0.23 per cent at $61.14 a barrel at 6.32pm UAE time on Friday. West Texas Intermediate, the gauge that tracks US crude, was trading 0.16 per cent lower at $57.51 per barrel.

From last Friday's close, Brent and WTI are on track to decline by about 3.5 per cent. Year-to-date, Brent has given up nearly 18 per cent, while WTI has slid more than 19 per cent.

Oil's early Friday gains came amid bargain-hunting buying and potential short-covering after sliding to eight-week lows, said Vandana Hari, chief executive of Singapore-based Vanda Insights.

"Though the oversupply narrative has reclaimed centre stage as the US-led Ukraine peace efforts grind on, this week’s sharp escalation in US-Venezuela tensions, which have also spilt over into the oil arena, is bolstering risk premium," she said.

The US has boosted its forces in what Washington says is a campaign to curb illegal drugs. Venezuelan President Nicolas Maduro has accused the White House of attempting to use military pressure to overthrow him.

The situation came to a head this week when the US seized a tanker, called Skipper, off the coast of Venezuela after claims it was being used to smuggle Iranian oil. Caracas condemned the move as an act of piracy. Washington is reportedly planning to intercept more ships under similar suspicion.