Brent crude tumbled about 11% during the week, marking its steepest weekly decline in seven weeks, while U.S. West Texas Intermediate (WTI) fell more than 9%, its biggest weekly drop in six weeks. Both benchmarks touched their lowest levels since mid-April.
On Friday, Brent crude futures for July, which expired on Friday, settled at $92.05 a barrel, down $1.66 or 1.8%. WTI crude futures closed at $87.36 a barrel, a decline of $1.54 or 1.7%. The three-month conflict involving the U.S. and Iran has repeatedly seen expectations of a potential resolution that could lead to the reopening of the Strait of Hormuz, a key shipping route through which roughly one-fifth of the world's oil and gas supplies pass. While both sides indicated that an agreement may be near, their descriptions of the proposed deal continued to differ.
Geopolitical tensions escalated on Thursday after fresh U.S. strikes targeted an Iranian military facility overnight, despite ongoing diplomatic engagement between Washington and Tehran. Iran's Revolutionary Guards later claimed responsibility for a strike on a U.S. airbase, according to the semi-official Tasnim news agency. The location of the base was not disclosed.
Market analysts noted that even if a ceasefire is agreed upon, restoring normal shipping activity through the Strait of Hormuz could take several months. Any damaged energy infrastructure may require an even longer period to return to full operation. Earlier this month, Saudi Aramco Chief Executive Officer Amin Nasser warned that disruptions in the Strait of Hormuz could postpone stability in global oil markets until 2027. He said nearly 100 million barrels of oil supply per week could be affected by continued disruptions.
Morgan Stanley described the oil market as being in "a race against time," saying the factors that have so far prevented a more pronounced rise in crude prices could begin to fade if the Strait of Hormuz remains closed through June. According to the brokerage, higher U.S. crude exports and softer demand from China have helped absorb part of the supply shock. However, it cautioned that an extended shutdown of the strait could tighten global oil supplies again if disruptions persist beyond the levels that the U.S. and China can comfortably offset.
Background
The ongoing tensions between the U.S. and Iran have kept the global oil markets on edge, with the Strait of Hormuz being a critical chokepoint for oil transportation. Historically, any disruptions in this region have had significant implications for global oil supply and prices.
As the geopolitical tensions continue to unfold, market participants are closely monitoring the developments around the Strait of Hormuz. The potential reopening of this crucial passage could significantly impact global oil supply dynamics, influencing prices and market stability in the coming months.
