By COMFORT OGBONNA
Oil prices fell on Friday and were on track to end a two-week run of gains as traders weighed persistent geopolitical tensions in the Middle East against signs that crude flows through the Strait of Hormuz are gradually recovering.
Brent crude futures fell 60 cents, or 0.67%, to $89.10 a barrel by 0636 GMT, while U.S. West Texas Intermediate crude declined 64 cents, or 0.77%, to $82.89.
Both benchmarks were headed for weekly declines. Brent was down about 5.3% for the week, while West Texas Intermediate was on course to fall 4.3%.
The declines came despite oil prices settling higher in the previous session after reports that U.S. President Donald Trump was not interested in returning to terms contained in an earlier agreement with Iran, raising concerns that diplomatic efforts to ease tensions could face additional obstacles.
Market participants have been closely watching developments involving Iran because prolonged disruptions in the region could affect crude supplies and shipping through the Strait of Hormuz, one of the world’s most important oil transit routes.
Despite the latest diplomatic setbacks, there are indications that oil shipments through the waterway are increasing.
“Despite diplomatic efforts hitting a roadblock, there are growing signs of additional oil flowing through the Strait of Hormuz,” analysts at ING said in a note. “As the conflict persists, producers are adapting to the new realities and becoming increasingly comfortable navigating the strait.”
The increase in shipments has helped ease some of the supply concerns that pushed crude prices higher earlier in the conflict.
Goldman Sachs estimated on Thursday that total oil exports from the Gulf had recently reached between 15 million and 16 million barrels per day. While that remained about 7 million to 8 million barrels per day below pre-war levels, it was nevertheless 5 million to 6 million barrels per day above the lowest levels recorded in March.
The recovery in exports has become an important factor for oil markets because traders are attempting to determine how much of the region’s normal supply can continue reaching international buyers despite heightened security risks.
Diplomatic uncertainty surrounding Iran remained another source of market volatility.
The Trump administration has repeatedly told mediators that it does not want to revive the memorandum of understanding reached with Iran in June, according to people familiar with the discussions. The position has complicated efforts by intermediaries to bring the two sides back to negotiations.
The United States said on Thursday that it was not conducting talks directly with Iran, despite efforts by other countries to encourage renewed engagement between Washington and Tehran.
Washington has also increased economic pressure on Iran. Earlier this week, the United States announced what it described as its toughest sanctions against Tehran, targeting Iran as tensions between the two countries remained elevated.
Iran condemned the measures as an inhumane and hostile act and argued that the sanctions had become less effective.
The developments have left oil traders balancing two competing forces: the possibility of further disruptions to regional supplies if tensions worsen and the growing evidence that producers and shipping operators are finding ways to maintain a larger volume of crude exports.
Any significant interruption to traffic through the Strait of Hormuz could quickly tighten global oil markets because the waterway handles a substantial portion of the world’s crude and petroleum product shipments.
At the same time, continued flows through the strait could reduce the risk premium that has been supporting oil prices and allow markets to focus more closely on supply, demand and broader economic conditions.
Geopolitical risks also extended beyond the Middle East on Friday as tensions between Russia and Western countries intensified.
Moscow warned that it could target British military facilities inside and outside Ukraine in response to Ukrainian attacks on Russian territory involving long-range cruise missiles supplied by Britain.
The warning added another layer of geopolitical uncertainty for investors already monitoring developments in the Middle East.
Trump, however, said he did not expect Russian President Vladimir Putin to attack a NATO member country. He also played down reports that CIA Director John Ratcliffe had warned Russian officials against carrying out such an attack.
Britain is a founding member of NATO, meaning any direct Russian attack against British territory could carry significant implications for the wider security alliance.
For oil markets, however, the immediate focus remained on the balance between geopolitical risks and physical crude supplies.
With Gulf exports recovering from their March lows and more oil appearing to move through the Strait of Hormuz, traders are reassessing how severe the supply disruption may ultimately become.
The decline in prices on Friday suggests that, for now, improving export flows and expectations of continued crude availability are outweighing concerns over stalled diplomacy and broader geopolitical tensions.
Investors will continue to monitor developments involving Iran, shipping through the Strait of Hormuz and any further escalation involving Russia and Western countries, all of which could quickly alter the outlook for global oil supplies and prices.
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