Oil prices experienced a significant drop of over 2 percent on Friday, poised for their steepest weekly decline since early April. This downturn in the market is largely attributed to reports suggesting a possible agreement between the United States and Iran that might lead to an extension of the current ceasefire and a relaxation of shipping restrictions through the Strait of Hormuz.
Brent crude futures fell to approximately $92 per barrel, while U.S. West Texas Intermediate (WTI) crude slipped below $88 per barrel, marking their lowest points since mid-April. Over the week, Brent saw a decrease of about 11 percent, whereas WTI lost over 9 percent in value. The market’s reaction stems from news that Washington and Tehran may have reached a preliminary understanding to prolong the ceasefire and potentially reopen the Strait of Hormuz, a crucial channel for global energy transportation. Although Iranian media has indicated that Tehran is in the final stages of reviewing this proposed agreement, a definitive decision remains pending.
The potential for enhanced oil flows through the strait has alleviated some concerns about supply disruptions, which had previously driven sharp increases in oil prices amid recent conflicts. However, uncertainties linger as shipping traffic has yet to return to pre-conflict levels. Analysts note that traders are closely monitoring developments related to the potential U.S.-Iran agreement, prompting many investors to exit bullish positions as prices continue to fall. Nonetheless, forecasts indicate that oil prices could stay high if disruptions in shipping endure for a prolonged period.
Additionally, Saudi Arabia is anticipated to reduce its official selling prices for crude exports to Asian markets for the second month in a row. This decision comes amid weaker demand and diminished spot market premiums. Despite ongoing supply concerns in the Middle East, demand from major Asian buyers remains subdued. Recent data from the United States also reveals declines in stockpiles of crude oil, gasoline, and distillates, indicating stronger domestic demand and increased refinery activity.