The global oil market experienced a significant downturn on Friday, with oil futures plummeting more than 1% and reaching their steepest weekly decline since early April. The decline in oil prices was largely driven by reports that the US and Iran had reached a potential deal to extend a ceasefire, which could alleviate tensions in the region and ease concerns about disruptions to global oil supplies. As a result, Brent crude futures for July fell 1.32% or $1.24 to $92.47 a barrel at 0656 GMT, while US oil futures CLc1 dropped $1.38, or 1.55%, to $87.52 a barrel.
The recent volatility in the oil market has been largely driven by conflicting signals over the potential end of the three-month-old Iran war and the reopening of the Strait of Hormuz, a critical conduit for roughly a fifth of the world's oil and liquefied natural gas supplies. Prices have swung wildly by as much as $6 for both benchmarks, reflecting the uncertainty surrounding the situation.
The US and Iran reached an agreement on Thursday to extend a ceasefire and lift restrictions on shipping through the Strait of Hormuz, sources told Reuters. However, U.S. President Donald Trump has yet to approve the deal, which has added to the market's uncertainty. Iranian state media also reported that the agreement had not been finalized.
The potential deal is seen as a positive development for the oil market, but analysts remain cautious about its prospects. Consensus remains that the conflict is over, and a deal is coming, according to IG analyst Tony Sycamore. As long as this narrative holds, crude oil has room to extend its decline toward trendline support in the low $80s.
The recovery of the oil market from the recent downturn will depend on several factors, including the lifting of restrictions on shipping through the Strait of Hormuz and the resumption of upstream production. Analysts at ING said a reopening of the waterway would offer some immediate relief to the oil market, but a full recovery is still uncertain.
Upstream oil production has fallen significantly since the war, with producers shutting in production in order to manage storage constraints,
The market's response to the potential deal is cautious, with analysts expecting a gradual recovery.
