The crude oil market fell on Friday after the latest round of US-Iran fighting as traders grew hopeful that shipping would eventually resume in the Strait of Hormuz.
Brent futures settled at $76.01 a barrel, down 29 cents or 0.38 per cent, while the US West Texas Intermediate (WTI) crude finished at $71,41 a barrel, down 67 cents or 0.93 per cent. However, for the week, Brent gained about 5.50 per cent and WTI nearly 4 per cent.
With the end of tit-for-tat air strikes and the promise of renewed talks between the US and Iran next week, traders looked forward to the Strait of Hormuz reopening.
Market analysts noted that oil prices are coming down after a spike near $76 a barrel, even as the Strait of Hormuz was effectively shut down once again, mainly on confidence that the US’ military strength will not allow the Strait of Hormuz to be shut down for an extended period of time.
On Thursday, Iranian armed forces launched attacks on US military infrastructure in Gulf states after U.S. strikes on Iran’s southern coastal and eastern provinces. However, prices eased after it was reported that Qatari negotiators were in Iran to meet with officials in an effort to de-escalate tensions and create conditions for broader negotiations to continue.
Separately, Iranian media reported multiple explosions across southern Iran. The area included Bushehr, where one of the country’s nuclear plants is located.
The recent escalation in hostilities between the US and Iran could upend the International Energy Agency’s forecast of a significant oil market surplus next year, the agency said. The developments have delayed a full reopening of the Strait of Hormuz, which carried about 20 per cent of daily global oil and gas supplies before the start of the war on February 28.
However, the lack of any new US strikes on Iran overnight is probably weighing on oil prices, though a drop in flows through the Strait of Hormuz is limiting the downside.
The IEA also downgraded its projections on Russian oil production because of Ukrainian attacks on the country’s energy infrastructure.
Traders added a larger risk premium to crude prices as renewed geopolitical tensions in the Middle East raised questions about the security of oil shipments through the Strait of Hormuz. Those concerns outweighed bearish pressure from another production increase by the Organisation of the Petroleum Exporting Countries (OPEC) and an unexpected build in US crude inventories.
