Oil prices fell on Friday as traders gained confidence that renewed conflict between the U.S. and Iran was growing less likely. Brent crude futures settled at $93.09 a barrel, down $1.94 or 2.04%, while U.S. West Texas Intermediate crude finished at $90.54 a barrel, down $2.50 or 2.69%.
The market sentiment shifted as the likelihood of escalation between the U.S. and Iran appeared to decrease, according to analysts. Despite the absence of a formal agreement, the market perceived a de-escalation in tensions. Petroleum Development Oman reported that operations at Mina al Fahal port were unaffected after an explosion near its mooring berths, although initial reports suggested oil loading had been suspended.
Both Brent and WTI contracts were on track to post their first weekly gains in three weeks, with Brent up 1.18% and WTI around 3.64%. Earlier in the week, prices had risen due to renewed fighting in the Middle East and ongoing U.S.-Iran peace talks, which affected traffic in the Strait of Hormuz, a critical oil passage.
“The market is not seeing escalation between the parties.”
Phil Flynn, Senior Analyst at Price Futures Group
Commerzbank analysts noted that while hopes for a U.S.-Iran agreement had been dashed, Brent crude and European natural gas prices saw slight increases. However, Brent's gains were limited by longer-than-expected oil inventories, rerouted exports, and declining demand.
OPEC maintained its oil demand growth forecast of 1.2 million bpd for the year, despite the Middle East conflict and the closure of the Strait of Hormuz. Iranian oil exports have hit a six-year low due to a U.S. naval blockade, compounded by weak demand in China.
“Any optimism remains heavily clouded by a tangled web of headlines and counter-headlines.”
Tony Sycamore, IG Market Analyst
Background
Oil prices are highly sensitive to geopolitical tensions, particularly in the Middle East, where a significant portion of the world's oil supply is located. The Strait of Hormuz is a strategic chokepoint for global oil shipments, and any disruption can lead to significant price volatility.
Looking ahead, market participants will closely monitor developments in U.S.-Iran relations and the broader geopolitical landscape, which could significantly impact oil prices. The situation remains fluid, with potential for both resolution and further tension.
