Oil prices fell on Friday and were on track to post a weekly loss after US President Donald Trump called off strikes on Iran and raised the prospect of the countries reaching a settlement to end the war.
Brent, the benchmark for two thirds of the world's oil, was down 2.16 per cent to $88.43 a barrel at 10.05am UAE time. West Texas Intermediate, the gauge that tracks US crude, was trading 2.04 per cent lower at $85.92 a barrel.
Brent futures closed down 2.9 per cent, while WTI dropped 2.6 per cent in the previous session after Mr Trump claimed a peace deal with Iran was close.
“Crude prices are on track to post a second straight weekly loss as Trump’s declaration that the Iran war is 'effectively over' and a potential deal to reopen the Strait of Hormuz have deflated the geopolitical risk that has kept prices elevated,” said Ahmad Assiri, market strategist at Pepperstone.
But he said Iran had not yet confirmed the deal and markets have heard similar proclamations from Mr Trump before without a definitive deal emerging. “Formal signing [of an agreement] is unlikely before early next week at the earliest, keeping weekend headline risk alive and leaving traders exposed to a reversal if the deal unravels or Tehran pushes back over the coming days,” Mr Assiri added.
On Thursday, Mr Trump said the US had agreed on a “great settlement” to end the conflict and that the deal could be signed within days.
He also said the strait, through which about a fifth of global crude and liquefied natural gas supplies normally flow, would reopen immediately after the deal is signed. “The strait will officially open as soon as we sign, which could be soon, very soon, maybe over the weekend in Europe,” Mr Trump said. Iran has not yet confirmed the agreement.
Oil prices rose at the start of the week amid renewed strikes by the US on Iran and attacks launched by Tehran on Kuwait and Bahrain. The US also attacked a ship in the Gulf of Oman that it accused of carrying oil from Iran. The strike caused the deaths of three Indian sailors.
Oil prices are expected to remain volatile in the coming days, with developments in the Middle East affecting their trajectory, analysts said.
“While prices have eased since May to around $96 to $97 per barrel on signs of diplomatic progress between the US and Iran, volatility remains elevated and the market remains highly sensitive to developments in the region," said Tiago Lacerda, an analyst at Axi.
He expects Brent to trade in the $85 to $95 per barrel range during the second half of the year before moving towards $79 to $89 per barrel by the end of the year, owing to the continued easing of tensions and gradual reopening of the strait.
A renewed escalation, however, could push prices back towards the $120 to $138 per barrel range recorded in April, he added.
