Oil prices experienced a slight decline on Friday, driven by reports of a possible extension of the US-Iran ceasefire amid the ongoing Middle East conflict that has now stretched beyond three months. Brent crude futures fell by 0.37% to $93.36 per barrel, while US oil futures slipped 0.71% to $88.27 per barrel, as traders reacted to shifting signals regarding a potential de-escalation in the Strait of Hormuz crisis.
Market Reaction to Ceasefire Hopes
The decline in oil futures was attributed to hopes of a tentative agreement between Washington and Tehran to extend the ceasefire. However, comments from US Vice President JD Vance, who stated that the two sides were 'close' to reaching a deal but 'not there yet,' prevented prices from falling further, according to Reuters. Prices were down more than 8% for the week, with Brent hitting a low of $87.11 after touching a high of $109.47 last week. This sharp volatility reflects conflicting signals over a potential end to the Iran war and prospects of reopening the strategic Strait of Hormuz.
Impact on Global Oil and LNG Flows
The Strait of Hormuz, which carries approximately one-fifth of global oil and LNG flows, has seen a significant drop in traffic since the conflict escalated. Shipping activity is now only a fraction of pre-war levels, underscoring the critical role of the waterway in global energy markets. Reports suggested that the US and Iran had agreed in principle to extend their ceasefire by 60 days and ease restrictions on shipping through the strait. However, the deal has not yet been formally approved by US President Donald Trump and has not been finalized by Iran, according to state-linked media and officials.
Sticking Points in Negotiations
Vance acknowledged that while Washington remained close to a breakthrough, there were still sticking points, particularly over Iran's enriched uranium stockpile and enrichment levels. 'We're not there yet, but we're very close and we're going to keep on working at it,' he said. The US Vice President added that the US could significantly set back Tehran's nuclear program, though he could not guarantee a deal. Market sentiment was further shaped by reports of renewed tensions on the ground, including US strikes on Iranian-linked targets and interceptions of drones and missiles in the Gulf region, underscoring the fragility of the ceasefire.
Renewed Military Actions
Earlier, US Central Command announced that it had shot down multiple Iranian drones and struck a ground control station near Bandar Abbas. Meanwhile, Kuwait reported intercepting a ballistic missile targeting its territory. Iran's Revolutionary Guard warned of a 'more decisive response' if attacks continued, highlighting the precarious nature of the current situation.
The ongoing volatility in oil markets is likely to persist as traders monitor developments in the Middle East, with any further escalation or de-escalation having significant implications for global energy prices.
