Oil prices experienced a significant drop of over 2 percent on Friday, with the market poised for its most substantial weekly decline since early April. This downturn comes amid reports of a possible agreement between the United States and Iran, which could extend a ceasefire and ease shipping restrictions through the critical Strait of Hormuz.
Brent crude futures saw a decrease to approximately $92 per barrel, while U.S. West Texas Intermediate (WTI) crude dipped below $88 per barrel. Both benchmarks hit their lowest points since mid-April, with Brent falling around 11 percent for the week and WTI dropping more than 9 percent. Market reactions were influenced by indications that Washington and Tehran might have reached a preliminary understanding to extend the ceasefire and potentially reopen the Strait of Hormuz, a vital channel for global energy transport. Iranian media noted that Tehran is nearing the final phase of reviewing the proposed deal, although a conclusive decision is yet to be made.
The potential for enhanced oil flow through the strait has mitigated fears of supply disruptions, which had previously driven sharp price increases amid the ongoing conflict. Nonetheless, uncertainty persists as shipping traffic through the strait remains significantly lower than pre-conflict levels. Analysts highlight that traders are closely monitoring developments related to the prospective U.S.-Iran agreement, with many investors retracting bullish positions as prices continue to fall. Despite the recent downturn, forecasts suggest that oil prices could remain elevated if shipping disruptions are prolonged.
In the interim, Saudi Arabia is anticipated to reduce its official selling prices for crude exports to Asia for the second month in a row due to weaker demand and decreasing spot market premiums. Demand from major Asian buyers, in particular, has remained lackluster despite ongoing supply concerns in the Middle East. Additionally, recent U.S. inventory data indicated a decline in crude oil, gasoline, and distillate stockpiles, which reflects robust domestic demand and increased refinery activity.