Oil Prices Fall but Stay Above 7% Weekly Gain as Middle East Risks Persist

Oil prices fell on Friday but remained more than 7% higher for the week as attacks along key Middle East shipping routes raised fears of prolonged supply disruptions.

Brent crude futures fell $3.75, or 3.48%, to $103.88 a barrel. US West Texas Intermediate (WTI) crude dropped $3.33, or 3.25%, to $99.15 a barrel.

Both benchmarks had reached their highest levels since mid-May earlier in the session. However, prices reversed their gains after reports emerged of possible diplomatic efforts to manage shipping through the Strait of Hormuz.

Possible Talks Put Pressure on Oil Prices

The Financial Times reported that Middle Eastern foreign ministers were working on a temporary arrangement with Iran over shipping through the Strait of Hormuz.

The reports prompted traders to reduce some positions after a sharp rise on Thursday. Brent and WTI had gained more than 6% in the previous session.

“Some headlines of possible new talks in the Middle East are weighing moderately on oil prices today,” UBS energy analyst Giovanni Staunovo said.

He added that near-term risks remained tilted to the upside. However, he also warned of continued high volatility.

Hormuz Traffic Drops Sharply

Iran said it attacked 10 ships near the Strait of Hormuz on Wednesday. The claim followed US strikes on five Iranian oil tankers.

Iran’s Islamic Revolutionary Guard Corps also warned that it would escalate its response to further attacks.

Business Community Urges Predictable Petroleum Pricing to Protect Industry

Meanwhile, vessel traffic through the strategic strait declined sharply. Preliminary tracking data showed seven vessel transits on Thursday, down from 11 a day earlier.

The figure was also well below the 10-day average of 15 transits.

Before the Iran war began in late February, the Strait of Hormuz carried about one-fifth of the world’s daily oil and liquefied natural gas supplies.

Red Sea Risks Add to Supply Concerns

The shipping risks have also expanded beyond the Gulf.

Iran-aligned Houthis seized Yemen’s port of Mocha on Thursday. The development has raised fresh concerns over traffic through the Red Sea.

At the same time, shipping through the Strait of Hormuz remains restricted. Tanker attacks have intensified across the region in recent days.

Attacks from Yemen on Saudi energy facilities have added another layer of risk. Analysts say the escalation could prolong disruptions across the wider Middle East.

The International Energy Agency said global oil supply and demand would fall more than previously expected this year. It also warned that limited progress toward ending the Iran war could delay a return to normal regional oil flows into 2027.

Diesel Prices Hit Record High

The supply disruptions are also pushing up refined fuel prices.

The Iran war and Ukrainian attacks on Russian refineries have reduced supplies. As a result, the US national average diesel price moved above $6 a gallon for the first time, according to GasBuddy.

“Refined products, particularly diesel, are feeling a one-two punch right now,” said Tim Waterer, chief market analyst at KCM Trade.

He said continued restrictions on Gulf shipping and Russian refinery outages could keep diesel and other refined products under greater price pressure than crude oil.

Banks Raise Oil Price Forecasts

Commerzbank raised its year-end Brent crude forecast to $85 a barrel from $75.

The bank also increased its jet fuel forecast to $1,230 a tonne from $980. Its diesel forecast rose to $1,200 a tonne from $950.

China also moved to raise domestic fuel prices. The country’s state planner said retail price caps for petrol and diesel would increase from September 12.

The increases will amount to 260 yuan ($38.76) per metric tonne for petrol and 250 yuan per metric tonne for diesel.

Meanwhile, two European Central Bank policymakers indicated that further interest-rate increases could remain possible if higher energy prices continue to push up inflation across the eurozone.