Crude oil prices witnessed a significant drop of over 2 percent on Friday, marking the steepest weekly decline since April, as the markets absorbed news of a potential U.S.-Iran agreement. This development could extend a ceasefire and potentially ease shipping restrictions in the critical Strait of Hormuz.
Brent crude futures fell to approximately $92 per barrel, while U.S. West Texas Intermediate (WTI) crude dipped below $88 per barrel, marking their lowest points since mid-April. Brent experienced an 11 percent drop over the week, and WTI saw a more than 9 percent decrease. The market’s reaction was primarily driven by reports indicating that Washington and Tehran might have reached a preliminary understanding to extend the ceasefire and facilitate the reopening of the Strait of Hormuz, a vital conduit for global energy transport. Iranian media indicated that Tehran was evaluating the proposed agreement, though a final decision had yet to be reached.
The prospect of enhanced oil flow through the strait has alleviated some concerns about supply disruptions, which had previously driven up prices amid recent conflicts. Despite this, there remains uncertainty as shipping activity through the strait has not fully returned to pre-conflict levels. Analysts suggest that traders are closely monitoring the potential U.S.-Iran deal, with many investors withdrawing bullish bets as prices continue to fall. Nonetheless, projections indicate that oil prices could remain elevated if shipping disruptions persist over a prolonged period.
In the meantime, Saudi Arabia is anticipated to reduce its official selling prices for crude exports to Asia for the second month in a row, in response to weaker demand and diminishing spot market premiums. Demand from prominent buyers in Asia has remained lackluster, despite ongoing supply concerns in the Middle East.
Adding to the current scenario, recent U.S. inventory data revealed a decline in stockpiles of crude oil, gasoline, and distillates, indicative of stronger domestic demand and increased refinery activity.