Oil Prices Slide Sharply as Iran–U.S. Talks Ease Supply Fears

BY COMFORT OGBONNA

Oil prices ended Friday lower, marking their steepest weekly decline in years, as markets reacted to diplomatic efforts between Iran and the United States aimed at securing a lasting ceasefire. The shift in sentiment came after weeks of heightened geopolitical tension that had driven prices toward the $100-per-barrel mark.

Despite ongoing attacks and continued restrictions on oil shipments through the Strait of Hormuz, traders appeared cautiously optimistic that negotiations could eventually stabilize supply flows. Concerns remain elevated, however, particularly regarding potential disruptions in Saudi Arabia, one of the world’s largest oil producers. In the physical market, prices have surged to record highs, reflecting tight supply conditions.

Brent crude futures fell by 72 cents, or 0.8%, to settle at $95.20 per barrel. Over the course of the week, Brent dropped 12.7%, its sharpest decline since August 2022. The downturn followed a rapid selloff triggered by news earlier in the week that Iran and the United States had agreed to a two-week ceasefire arrangement brokered by Pakistan.

Meanwhile, U.S. West Texas Intermediate (WTI) crude futures declined by $1.30, or 1.3%, closing at $96.57 per barrel. WTI posted a weekly loss of 13.4%, its largest since April 2020, when global demand collapsed during pandemic-related lockdowns.

Market analysts continue to focus on shipping activity through the Strait of Hormuz, a critical chokepoint for global oil and gas transport. Traffic through the route remains at less than 10% of normal levels, with Iran warning vessels to remain within its territorial waters. Recent ship-tracking data shows that most vessels passing through the strait are linked to Iran, underscoring the ongoing disruption.

Tehran has reportedly proposed charging transit fees for vessels using the strait as part of a broader peace agreement. However, the idea has faced strong opposition from Western governments and international maritime authorities, who argue that such measures could further destabilize global trade.

The strategic waterway has been largely shut since the conflict escalated on February 28, when the United States and Israel launched coordinated airstrikes on Iranian targets. Since then, more than 60 energy infrastructure sites across the Gulf region have been hit by drone and missile attacks. While many of these incidents are not expected to cause long-term damage, several key facilities may take months to repair, limiting supply in the near term.

Production levels across the Middle East have already been significantly impacted. Regional producers shut in approximately 7.5 million barrels per day (bpd) of crude output in March as storage capacity tightened. That figure is expected to rise to 9.1 million bpd in April, according to recent estimates. The scale of these disruptions has dramatically shifted market expectations, with analysts now forecasting a global supply deficit for the year—reversing earlier predictions of surplus.

Even so, there are early signs of preparation for recovery. Middle Eastern producers have reportedly asked Asian refiners to submit crude loading schedules for April and May, signaling expectations that shipping through the Strait of Hormuz could eventually resume.

Oil prices found some stability toward the end of the week as investors weighed falling Saudi output against diplomatic progress. Recent reports indicate that attacks on Saudi energy infrastructure have reduced the country’s production capacity by around 600,000 barrels per day and cut throughput along its East-West Pipeline by approximately 700,000 bpd.

On the diplomatic front, Lebanon has announced plans to participate in upcoming talks in Washington alongside U.S. and Israeli officials, with the goal of advancing ceasefire negotiations.

At the same time, the U.S. government is expected to extend a waiver allowing certain countries to continue purchasing sanctioned Russian oil and petroleum products. This move could help ease supply pressures in global markets, even as geopolitical uncertainty persists.

In the United States, energy companies have reduced drilling activity, cutting the number of active oil and gas rigs for the third time in four weeks. The total rig count is now down by about 7% compared to the same period last year, signaling a more cautious approach from producers amid volatile market conditions.

Adding another layer of complexity, Russia’s crude exports from its main western ports have increased in early April compared to March. This comes despite logistical challenges and disruptions caused by drone attacks on key energy infrastructure.

Overall, while diplomatic efforts have brought some relief to oil markets, the situation remains highly fragile. Supply constraints, geopolitical risks, and uncertain recovery timelines continue to shape price movements, leaving traders closely watching developments in the Gulf region and beyond.