Crude oil futures fell to their lowest levels since mid-April as the United States and Iran appeared to be nearing a preliminary agreement that includes reopening the Strait of Hormuz.
Following prolonged uncertainty regarding the status of a deal to extend the current ceasefire for 60 days, during which discussions on the future of Iran's nuclear program would continue, the U.S. President indicated in a Friday morning social media post that he would make a "final decision" on the agreement.
Iran's Fars News Agency reported that the deal requires Iran to open the strait without restrictions. However, after insisting it would regulate traffic, including imposing transit fees, the Iranian side stated it would reopen the waterway "according to its own pre-determined arrangements."
"Flows are trading the 'risk' of a peace deal this weekend, with money broadly coming out of energy, grains, and oilseeds," wrote Alan Suderman of StoneX. "Traders will be watching headlines all weekend to see if they extend this trend or reverse it on Sunday night."
However, as the conflict enters its third month, Helima Croft, Head of Global Commodity Strategy at RBC Capital Markets, noted in a report that "the global energy cushion is being rapidly eroded, and there is little time left to reopen the strait and prevent a 'hard landing' for oil prices."
In an interview, Chevron CEO Mike Wirth highlighted that attacks on several vessels transiting the Strait of Hormuz in recent days underscore the "very real" risks that Persian Gulf shipowners still face, regardless of any peace deal.
"There have been kinetic activity this week—military conflict—some of it has been reported in the press, some of it has not," Wirth said, but added, "The market psychology is that this is closer to the end than the beginning."
On Friday, the front-month July Nymex crude oil contract fell 1.7% to settle at $87.36 per barrel. The front-month July Brent crude contract fell 1.8% to $92.05 per barrel. Both benchmarks marked their lowest settlement prices since April 17.
For the week, WTI crude plunged 9.6%, its largest weekly percentage decline in six weeks. Brent crude tumbled 11.1%, its worst weekly percentage drop in seven weeks.
In other trading, the front-month July Nymex natural gas contract settled nearly unchanged, edging up 0.1% to $3.290 per million British thermal units (MMBtu), marking its highest settlement price since February 6.
Comments