Oil prices slid by more than 10 per cent on Friday and are heading for another weekly loss after Iran declared the Strait of Hormuz is "completely open", following the announcement of a 10-day ceasefire in Lebanon.
Iranian Foreign Minister Abbas Araghchi said the key waterway, through which a fifth of the world's oil and gas normally passes, will be open for "the remaining period of the ceasefire", which began on Friday.
Vessels are to follow a co-ordinated route "announced by the Ports and Maritime Organisation of Iran", he added.
Oil had already pared back gains after the ceasefire came into effect and US President Donald Trump said the war with Iran could end “fairly soon”. The truce between the two sides is to end on April 22.
Brent, the benchmark for two thirds of the world’s oil, slipped 10.43 per cent to $89.02 a barrel at 5.45pm UAE time. West Texas Intermediate, the gauge for US oil, plunged 11.24 per cent to $84.05 a barrel.
From last week's close, Brent and WTI are on pace for a decline of about 6 per cent and 13 per cent, respectively. They were both on track for a weekly gain earlier on Friday.
Oil prices softened after Mr Trump said Tehran has made concessions during the continuing talks to end the war and agreed to US terms including opening the Strait of Hormuz.
“Crude oil prices have stabilised as the geopolitical risk premium diminishes, with the market increasingly pricing in a diplomatic solution, supported by reports that Iran is proposing to allow free shipping through the Strait of Hormuz, while Donald Trump appears set to make compromises to reach an exit from his war,” said Samer Hasn, senior market analyst at XS.com.
Oil prices, which have risen to as much as $103 per barrel this week, have been extremely volatile since the beginning of the war, with Brent surging about 60 per cent in March, its biggest monthly gain on record.
Brent lost more than 11 per cent and WTI plunged by more than 14 per cent in a single day last week, when Washington and Tehran agreed to a two-week ceasefire only hours before Mr Trump's deadline.
Prices, however, surged on Monday, after Pakistan-brokered talks in Islamabad failed to find a diplomatic solution.
The conflict tipped the Middle East into its worst geopolitical crisis in decades. The hostilities that began with Israel and the US launching co-ordinated strikes on Iran, and Tehran attacking civil and military targets of its Arab neighbours has delivered an unprecedented supply shock to global energy markets.
Blockade of a blockade
Since the war began, Tehran has blocked the Strait of Hormuz for all but a few ships, disrupting about a fifth of global oil flows. Meanwhile, the US Navy also blockaded traffic in and out of Iranian ports this week as the fragile ceasefire still holds.
“The dominant theme now is not escalation but stabilisation,” Bloomberg quoted Priyanka Sachdeva, a senior market analyst at brokerage Phillip Nova, as saying. “Oil markets are sending a clear message: fear drove the rally, diplomacy is driving the correction and uncertainty will drive volatility ahead.”
On Thursday, Mr Trump said he does not see the need to extend the two-week ceasefire as a deal with Tehran could be reached “fairly soon”, but he would extend it if required.
Mr Trump also suggested he might travel to Pakistan, which hosted the first round of talks in Islamabad, should Washington strike a deal with Tehran.
The longer the strait remained closed, the bigger the impact on economies in Asia, which rely largely on energy imports from Gulf countries.
The IMF and the World Bank have warned of serious consequences for global growth if the conflict drags on. Market participants such as Wood Mackenzie say oil in the short term could shoot up to $150 per barrel and may hit $200 this year if the geopolitical situation deteriorates.
