Crude oil prices fell on Friday as investors weighed the prospects of US-Iran diplomatic negotiations against continued threats of attacks on Saudi energy infrastructure.
Following a sharp rally in the previous trading session, international oil prices pulled back on Friday, with traders assessing the possibility of US-Iran diplomatic mediation while remaining alert to the persistent risk of attacks on Saudi energy facilities.
During European afternoon trading, the front-month November Brent crude contract dropped 1.6% to $104.89 per barrel, while West Texas Intermediate (WTI) fell 2.3% to $92.41 per barrel.
Homayoun Falakshahi, head of crude oil analysis at Kpler, said: "Until there are concrete de-escalation measures, diplomatic news should be treated with caution. Real progress would mean the US lifting its blockade or oil shipments actually resuming passage."
Fresh attempts to restart negotiations still face numerous obstacles. Saudi Arabia and the UAE have urged Washington to maintain economic pressure on Iran and avoid concessions such as easing sanctions or lifting the US naval blockade. Reports also indicate that mediators including Qatar are pushing for a new round of talks as early as next week in Oman, with the goal of reopening the Strait of Hormuz and gradually ending the war.
Kuwait's National Bank (NBK) said in an oil market report released Thursday that despite efforts to restore regional transportation routes, short-term crude fundamentals remain tight. The Brent front-month contract spread has held at $4-5 per barrel, far above the sub-$1 level seen in February, reflecting tight spot supply. NBK stated that if a comprehensive agreement to fully reopen the strait cannot be reached in the short term, market fundamentals will likely continue to maintain a tight balance.
According to International Energy Agency (IEA) data, since the conflict broke out, global statistical crude oil inventories have declined by a cumulative 507 million barrels, with an average daily drawdown of 2.8 million barrels. In August alone, inventories fell by a further 95 million barrels, further shrinking the safety buffer available to cushion subsequent supply shocks.
However, US Energy Information Administration (EIA) data showed that commercial crude oil inventories in the United States increased by nearly 3 million barrels to 426.4 million barrels in the week ending September 18.
The pullback in oil prices followed a significant surge in the previous trading session: Saudi Arabia said its air defense systems intercepted missiles fired at the kingdom, causing Brent crude to rise 3.4% to close at $106.60 per barrel, while WTI gained 2.7% to $94.61 per barrel. A Houthi spokesperson said the group used missiles and drones to attack Saudi Aramco facilities in Riyadh and the Red Sea port city of Yanbu.
Earlier on Thursday, the Saudi-led coalition in Yemen said its air defense systems intercepted and destroyed six ballistic missiles launched by the Houthis. French President Emmanuel Macron announced on Thursday that France plans to send troops, radar, and defense systems to Saudi Arabia to help protect the refinery and crude oil pipeline at the Red Sea port of Yanbu. Macron said France had reached a deployment agreement with Saudi authorities, while emphasizing that France would not be directly drawn into the conflict.
Saudi Arabia has activated the East-West pipeline to bypass disruptions in the Strait of Hormuz, and Yanbu has become an important export terminal for Saudi crude. With shipping continuously facing attacks and threats and maritime crude transport in the Middle East obstructed, the importance of this Red Sea export channel has risen further.
Some alternative Gulf export routes have already offset part of the supply disruption impact. According to IEA data: before the conflict broke out, combined crude oil exports from Saudi Arabia's Yanbu port and the UAE's Fujairah port (which can bypass the Strait of Hormuz) stood at 4.1 million barrels per day; this surged to 7.8 million barrels per day in June; but amid attacks on alternative routes, it fell back to 5.5 million barrels per day in August.
The broader energy market remains vulnerable to further supply disruptions. According to estimates by S&P Global Energy CERA, the conflict has already reduced crude oil supply by about 27%, refined product supply by 21%, and liquefied natural gas supply by 16%. The agency noted in a research report on Thursday: "The mere emergence of news about negotiation progress does not mean the war risk premium will completely disappear."
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