(Bloomberg) –Oil headed for its largest weekly loss since July as the prospect of an immediate confrontation between the U.S. and Iran abated, allaying fears of disruption to Middle East energy supplies.

Futures soared to an eight-month high to top $65 a barrel in New York on Jan. 8 as Washington and Tehran faced-off after the killing of a top Iranian general. But prices retreated as the two adversaries backed away from a full-scale conflict. Crude is now trading back below $60 and is headed for about a 6% loss for the week.

“Prices are still sliding because of the easing in tensions in the Middle East,” said Michael Loewen, director of commodity strategy at Scotiabank. “That’s draining the supply risk premium that was injected into the market starting with the killing of the Iranian general.” Data from the U.S. showed the supplies are plentiful, not only in crude but also in products, he added.

U.S. crude inventories increased by 1.16 million barrels last week despite expectations for a decline, and gasoline stockpiles hit a 10-month high, government data showed on Jan. 8. Combined, weekly crude and product inventories swelled nearly 15 million barrels.

West Texas Intermediate crude for February delivery fell 19 cents to $59.37 a barrel on the New York Mercantile Exchange as of 11:43 a.m. local time. Brent futures for March settlement rose 11 cents to $65.48 a barrel on the ICE Futures Europe exchange.

The conflict has so far spared output and exports from the Middle East. Further, the global market has a comfortable supply cushion with OPEC members sitting on huge amounts of spare capacity after cutting production for most of the past three years, and American production sets new records each month.

However, tensions in the Persian Gulf remain elevated as President Donald Trump continues to squeeze Tehran with stringent economic sanctions over its nuclear program. Less than four months ago, half of Saudi Arabia’s production capacity was temporarily disabled in a missile strike — which the U.S. blames on Iran but the Islamic Republic refutes — a stark reminder of the vulnerability of facilities in the region that supplies about a third of the world’s oil.

“Although the threat of outright war has receded, the industry remains on edge, expecting disruptions like shipping incidents or attacks on oil facilities on par with events last year,” Eurasia Group analysts Robert Johnston and Henning Gloystein said in a note.

Other oil-market news:

• Gasoline futures rose 1.4% to $1.6751 a gallon.
• Oil prices should not increase substantially in the coming months in the absence of any major geopolitical event, International Energy Agency Executive Director Fatih Birol said in New Delhi.
• The U.S. and China are finalizing a bevy of long-running corporate deals ahead of a high-profile ceremony to sign a trade accord next week.
• A surge in Asian imports of naphtha — a feedstock used to make plastics — from the U.S. in December is likely to continue this quarter as supplies from the Middle East remain scarce, according to traders and analysts.

–With assistance from Sharon Cho.