Oil prices witnessed a significant drop of more than 2 percent on Friday, marking their steepest weekly decline since early April. This downturn comes as markets respond to potential developments in U.S.-Iran relations that could extend a ceasefire and ease shipping restrictions through the critical Strait of Hormuz. Brent crude futures slipped to approximately $92 per barrel, while U.S. West Texas Intermediate (WTI) crude decreased to below $88 per barrel. Both benchmarks hit their lowest since mid-April, with Brent decreasing by about 11 percent for the week and WTI losing over 9 percent.
The market dynamics shifted with reports suggesting that Washington and Tehran might have reached a preliminary understanding to extend a ceasefire and reopen the Strait of Hormuz, a vital route for global energy. Iranian media indicated that the proposal is in the final review stages, though a definitive decision is still pending. The potential for improved oil flow through the strait alleviated some concerns over supply disruptions, which had previously caused sharp price surges amid the ongoing conflict. However, uncertainty lingers, as shipping activity in the waterway remains significantly below pre-conflict levels.
Analysts highlighted that traders are closely monitoring the developments of the possible U.S.-Iran agreement, leading many investors to close bullish positions as prices continue to fall. Despite the recent declines, some projections maintain that oil prices might stay high if shipping disruptions persist over a longer period.
In addition, Saudi Arabia is anticipated to cut its official selling prices for crude exports to Asia for the second month in a row due to declining demand and easing spot market premiums. Demand from key purchasers, especially in Asia, has remained lukewarm despite ongoing supply concerns in the Middle East.
Meanwhile, recent data on U.S. inventories showed a reduction in crude oil, gasoline, and distillate stockpiles, reflecting robust domestic demand and increased refinery operations. This domestic activity comes amid broader global market adjustments to the potential easing of tensions in the Strait of Hormuz.