On Friday, oil prices experienced a decline of more than 2 percent, marking their steepest weekly drop since early April. This downturn was influenced by reports suggesting a potential agreement between the United States and Iran, which could extend a ceasefire and alleviate restrictions on shipping through the strategic Strait of Hormuz. As a result, Brent crude futures decreased to approximately $92 per barrel, while U.S. West Texas Intermediate (WTI) crude fell below $88 per barrel, reaching their lowest points since mid-April. Over the week, Brent saw a reduction of about 11 percent, and WTI lost more than 9 percent.
The market’s reaction was largely driven by news that Washington and Tehran might have reached a preliminary agreement to prolong a ceasefire and reopen the Strait of Hormuz, a crucial artery for global energy supply. Reports from Iranian media indicated that Tehran was in the final stages of reviewing the agreement, although no conclusive decision had been reached. The prospect of enhanced oil flows through the strait has eased worries regarding supply disruptions that had previously contributed to significant price hikes amid ongoing conflict.
Despite these developments, uncertainty persists as shipping activity through the Strait of Hormuz remains significantly below pre-conflict levels. Analysts have noted that traders are closely monitoring the situation surrounding the potential U.S.-Iran deal, leading many investors to liquidate bullish positions as prices continue to decline. Nonetheless, predictions suggest that oil prices could stay high if disruptions in shipping endure over a prolonged period.
In the meantime, expectations are growing that Saudi Arabia will 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. Major buyers, especially in Asia, have shown subdued demand despite the ongoing supply concerns emanating from the Middle East. Additionally, recent U.S. inventory data pointed to declines in crude oil, gasoline, and distillate stockpiles, indicative of stronger domestic demand and heightened refinery activity.
