Oil set for weekly gain of over 7% on supply disruptions; US diesel hits record high

Sept 11 (Reuters) - Oil prices slipped on Friday but were still up more than 7% for the week and U.S. diesel prices hit a record high as attacks along key Middle East shipping routes stoked prolonged supply ‌disruption fears.

Brent crude futures were down $3.75, or 3.48%, to $103.88 a barrel at 1012 GMT. U.S. West Texas Intermediate crude fell $3.33, or ‌3.25%, to $99.15 a barrel. Both benchmarks hit their highest levels since mid May earlier in the session.

The benchmarks reversed the early gains after the Financial Times reported that foreign ministers ​in the Middle East are trying to work out a temporary deal with Iran to manage shipping through the Strait of Hormuz.

Brent and WTI rose more than 6% on Thursday.

"Some headlines of possible new talks in the Middle East are weighing moderately on oil prices today," said UBS energy analyst Giovanni Staunovo, adding: "I keep seeing near-term risks to the upside for oil prices, but we should expect ongoing high price volatility too".

Iran said ‌it had attacked 10 ships near the Strait of ⁠Hormuz on Wednesday, after the U.S. hit five Iranian oil tankers. Iran's Islamic Revolutionary Guard Corps said it would escalate its response to any further attacks.

Vessel transits at the Strait of Hormuz fell to seven on Thursday ⁠from 11 the previous day, preliminary ship-tracking data showed on Friday, well below the 10-day average of 15.

The strait handled about one-fifth of global daily oil and liquefied natural gas supplies before the Iran war began in late February.

Iran-aligned Houthis seized control of Yemen's port of Mocha on Thursday, posing a ​further ​threat to Red Sea traffic, while Gulf traffic remains restricted through the Strait ​of Hormuz as tanker attacks in the region have intensified ‌in recent days.

Attacks from Yemen on Saudi energy facilities marked an escalation beyond Iran and the Strait of Hormuz and raised fears of prolonged disruptions in the broader region, analysts say.

Global oil supply and demand will fall further than previously thought this year, the International Energy Agency said, as a lack of progress in ending the Iran war delays the return of normal Middle East flows into 2027.

Meanwhile, two European Central Bank policymakers opened the door on Friday to further interest rate increases if a war-fuelled rise in energy prices continues and pushes up ‌other prices in the euro zone.

Oil supply disruptions due ​to the Iran war, along with Ukrainian attacks on Russia's refineries, pushed the U.S. national ​average diesel price past $6 a gallon for the first time ​ever on Thursday, according to price tracker GasBuddy.