LONDON, Oct 16 (Reuters) - Oil prices steadied on Friday and 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 after an IEA move to release more of the fuel.
Brent crude futures were up 36 cents, or 0.34%, at $106.28 a barrel at 1107 GMT, while US West Texas Intermediate crude futures were down 19 cents, or 0.19%, to $97.78.
"The relative stability reflects a market caught between persistent supply disruption risks in the Middle East, where attacks on ships in and around the Strait of Hormuz continue to underpin prices," said Saxo Bank analyst Ole Hansen.
WTI settled up more than 3% on Thursday after a big US crude stock draw on hurricane production shut-ins.
So far this week, Brent has risen 1.4% and WTI 6.4%.
"The IEA's pledge to release the remaining 100 million barrels under its March agreement, together with reports that the US is considering easing sanctions on some dark fleet tankers, may be weighing slightly on sentiment," Hansen said, adding that the International Energy Agency release is unlikely to ease diesel supply tightness.
IRAN SAYS IT IS STEPPING UP STRIKES
Supply concerns 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.
European diesel refining margins fell by nearly 2% on Friday to $78.67 a barrel, after the IEA agreed on Thursday to release more than 20 million barrels of the fuel 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 recovery in Hormuz flows in the absence of a comprehensive political deal.
Washington 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.
The discussions come days after US 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, Jan Harvey, Mark Potter and Alexander Smith
