Oil fell almost 2 per cent on Friday and was on track for its steepest weekly decline since early April, as a shaky US-Iran ceasefire and signs of weakening Asian demand outweighed a midweek bounce.
Brent crude futures were down 1.58 per cent at $92.23 a barrel, while West Texas Intermediate fell 1.35 per cent to $87.70, as of 4.35pm UAE time.
Brent has plunged about 11 per cent this week, its sharpest drop since the week ending April 6, while WTI is off nearly 10 per cent for its biggest weekly loss since mid-April. The falls come as traders wager that the US and Iran will eventually agree to reopen the Strait of Hormuz, the conduit for about a fifth of global oil supply before the war.
Gold rallied above $4,500 an ounce, extending a recovery from a two-month low, as the prospect of a ceasefire extension eased expectations of higher-for-longer interest rates.
The truce between the US and Iran is fragile, with both sides accusing the other of breaching it. Negotiators are said to have circulated a draft agreement to extend the ceasefire and gradually reopen the strait, but it remains unsigned.
The proposed 60-day deal would guarantee free passage through the waterway, with Tehran clearing mines within 30 days. But Washington has ruled out near-term sanctions relief and insists Iran will not have control of the strait.
US forces launched strikes on Iranian sites near Hormuz this week, hitting a launch site and downing drones, while Iran's Islamic Revolutionary Guard Corps fired warning shots at passing vessels and claimed a strike on a US airbase. The risk premium spread beyond the Gulf after tankers were hit by drones off Turkey's Black Sea coast.
Of the 53 container vessels caught inside the Gulf when Iran shut the strait, only nine have managed to exit, leaving crews and cargo in indefinite commercial limbo, Kpler says.
Asian flows have been severely impacted. Japan's crude imports plunged almost 66 per cent year on year in April to about 850,000 barrels a day, the lowest in more than 60 years, as the disruption throttled Middle East shipments.
On the supply side, Saudi Arabia, the world's biggest oil exporter prewar, is poised to cut its official selling prices for most grades to Asia in July, a Reuters survey showed, as softer Dubai quotes and slim refining margins erode its pricing power.
The cut would underline a deeper retreat by Asian buyers. Chinese imports of Saudi crude are set to drop to about 600,000 bpd by the end of June, from about 1.6 million bpd in February, with refinery runs at the lowest since August 2022.
US crude, gasoline and distillate stockpiles all fell last week, according to the Energy Information Administration, as refiner and consumer demand rose and exports declined.
“While oil flows through the Strait of Hormuz remain restricted and oil inventories keep falling, the market focus remains on the possibility of a deal,” said UBS analyst Giovanni Staunovo, adding that the price drop could be forcing some traders to close long positions.
Commerzbank raised its Brent forecast to $90 a barrel by the end of September, assuming the strait stays shut to normal shipping for another two months.
Washington has kept up the diplomatic pressure on Iran over the crisis in the strait. US Treasury Secretary Scott Bessent said sanctions have been imposed on Iran's so-called Strait Authority, calling it “a joke” and warning corporate or state entities against paying tolls or disguising them as aid payments.
The move came as part of the Treasury's Economic Fury campaign, with Mr Bessent saying the Iranian economy and currency were “in free fall”.
