Oil prices drop on U.S.-Iran talks report backed by China
Brent and WTI slid Friday after Reuters reported Pakistan is seeking to restart U.S.-Iran talks with China’s support.
By Dev Ramirez · Crypto Correspondent
· 3 min read
A Reuters report on possible U.S.-Iran talks sent oil prices lower Friday, cutting into a week of gains driven by escalating conflict in the Middle East. For everyday investors, the move shows how quickly crude can swing when diplomacy appears to reduce the risk of supply disruptions.
Brent crude futures, the global oil benchmark, were down nearly 5% at $95.73 a barrel, according to CNBC. U.S. West Texas Intermediate crude futures traded 4.3% lower at $88.27 a barrel.
Reuters reported, citing three sources, that Pakistan is trying to restart talks between Washington and Tehran and that China is backing the effort. A Pakistani government official told Reuters that China was unhappy because Iranian attacks on other Gulf states and the closure of the Strait of Hormuz were affecting Chinese interests.
The Strait of Hormuz is a narrow waterway between the Persian Gulf and the Gulf of Oman that is central to global oil shipping. When traders believe tankers may face delays or attacks there, crude prices can rise because buyers price in the risk of tighter supply.
Why did oil prices fall Friday?
Oil fell because the Reuters report suggested a possible diplomatic channel could reopen between the U.S. and Iran. In oil markets, even the chance of talks can reduce the “geopolitical risk premium,” the extra price traders add when war, shipping attacks or sanctions threaten supply.
The drop came after a sharp weekly rise. CNBC reported that U.S. crude was still up about 7% for the week, while Brent had gained more than 8%, as fighting in the region intensified.
U.S. Central Command said overnight that it completed a 13th straight night of strikes on Iran. Centcom said the targets included military command centers, drone storage sites, communications networks, coastal surveillance facilities and maritime capabilities.
The command said the strikes were meant to reduce threats to civilian mariners and commercial ships moving through the Strait of Hormuz. It also said the waterway remained open, commercial ships continued to move through with U.S. military support, and more than 50,000 U.S. service members were operating across the Middle East.
President Donald Trump told Axios on Thursday that he was considering what he called a “massive attack” on Iran after the conflict spread further into the Red Sea. Trump said he was close to a decision and that the potential action would be larger than previous attacks in the war.
Trump also said on Truth Social that the U.S. would hold Iran responsible for any further attacks by Yemen’s Tehran-backed Houthis, after the group claimed strikes on two Saudi Arabian oil tankers in the Red Sea. Iran’s Revolutionary Guard said Thursday it had attacked U.S. military facilities at an American base in Jordan, according to state media.
What analysts are watching in crude
Daniela Hathorn, senior market analyst at capital.com, said in a Friday note that instability around major shipping routes had rebuilt a sizable geopolitical risk premium in oil. She said disruption in the Red Sea and tensions around Hormuz were keeping energy security concerns alive and inflation risks elevated.
Giovanni Staunovo, a strategist at UBS Global Wealth Management, said in a Thursday note that markets may be too optimistic about how quickly Middle East oil production can recover. He said inbound vessel flows remain depressed as the conflict resumes, which could keep the market tight and support prices. UBS expects Brent to fall to $85 a barrel by year-end, according to CNBC.
This story draws on original reporting from CNBC.
