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Oil prices retreated on Thursday afternoon after hitting a four-year high of $126 a barrel in early trade on reports that the US is considering fresh military strikes on Iran as well as deploy hypersonic missiles in the Middle East.
Brent, the benchmark for two-thirds of the world's oil, was trading 2.87 per cent lower at $114.64 a barrel at 5.39pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was down 1.07 per cent at $105.74 per barrel.
Oil had surpassed $120 per barrel in 2022, primarily driven by supply shocks and geopolitical tensions. Since the Iran war broke out on February 28, Brent has risen by 64 per cent, while WTI has leapt by 60 per cent.
Crude is in “rally mode” after as US-Iran standoff worsens, said Vandana Hari, chief executive of Singapore-based Vanda Insights. Futures price are in extended “Hormuz standoff”, with “fears of return to war”, she added.
Goldman Sachs had warned this week that oil prices could approach $120 a barrel later this year amid a continued stalemate in peace talks between the US and Iran, which leaves Gulf shipments uncertain for longer.
The global investment bank had raised its oil price forecasts for the fourth quarter of 2026, lifting its Brent crude target to $90 per barrel and WTI to $83 per barrel, warning that massive Middle East production losses are driving global oil inventories lower.
The US military is reportedly considering sending its long-range hypersonic missile to the Middle East, to possibly strike ballistic-missile launchers embedded in Iran.
US President Donald Trump on Wednesday warned Iran it needed to get its “act together”, hours after Tehran said it has the right to take “necessary and proportionate measures” in the Strait of Hormuz.
The US has been reviewing an Iranian proposal, but according to American outlets, Mr Trump has been disappointed by the fact that it does not address Iran's nuclear programme.
Mr Trump's warning comes amid growing international criticism of Iran’s effective closure of the strait following US and Israeli strikes in late February, which triggered a wider regional conflict.
The closure of the Strait of Hormuz by the US and Iran has “severely impacted” crude flows, keeping oil prices elevated, said Vijay Valecha, chief investment officer of Century Financial. He said the US sending hypersonic missiles to the Middle East would be the first time it has used such weapons.
“Adding to this is President Trump’s indication to extend the blockade on the strait indefinitely to further pressure Iran,” he added.
“The IEA [International Energy Agency] has already called the ongoing supply disruption the largest in history. With Middle Eastern crude unable to reach global markets, buyers have turned to the US for supplies and US crude exports have surged to a record high of six million barrels per day. However, such record exports are not sustainable and are insufficient to meet the market shortfall.”
The UAE’s Opec exit has also heightened concerns about prolonged supply disruptions.
“UAE’s shock exit marks a structural break in Opec/Opec+, raising questions over the durability of co-ordinated supply management,” said Ms Hari.
Wood Mackenzie said the Emirates' withdrawal from the group, effective from Friday, represents “the most significant fracture in the organisation's 66-year history and increases the risk of oversupply weakening prices”.
