Oil slips 2% as diplomatic hopes ease supply fears
Crude oil prices fell sharply on Friday, with global benchmark Brent settling at US$104.32 per barrel, a drop of 2.1 percent, or US$2.28. US West Texas Intermediate (WTI) futures also declined, losing US$2.20 to close at US$92.41, a 2.3 percent fall, according to figures reported by WAM.
The decline came despite ongoing concerns about physical supply disruptions in the Gulf region. Market movements were driven instead by signs of diplomatic progress between the United States and Iran, which raised prospects for a potential easing of geopolitical tensions.
Strait of Hormuz talks prompt market shift
Reports that Iran was open to a negotiated agreement with the United States played a significant role in reducing the geopolitical risk premium on oil prices. Traders reacted to hopes for a breakthrough that could see Iran reopen the Strait of Hormuz, a critical waterway for global energy exports. The prospect of Washington lifting its blockade on Iranian ports also contributed to the shift in sentiment.
The anticipation of increased supply from a diplomatic resolution briefly outweighed concerns about ongoing attacks on energy infrastructure. Some 10 million barrels per day of Gulf output remain shut in due to heightened security risks, with a full recovery not expected until 2027.
What happens next
The price movement reflects how sensitive oil markets remain to geopolitical developments in the region. For residents of the United Arab Emirates, fluctuations in crude prices can influence fuel costs at the pump and broader inflationary pressures in the economy.
Financial institutions offer varied outlooks. J.P. Morgan has revised its Brent forecasts downward, predicting an average of US$86 per barrel in Q3 2026 and US$80 in Q4, while Goldman Sachs raised its December Brent forecast to US$85 per barrel, acknowledging persistent supply disruptions.
Analysts note that if the Strait of Hormuz remains closed, Brent could exceed US$120 in the fourth quarter of 2026. Conversely, if diplomatic progress leads to supply relief and demand losses persist, prices could retreat further into 2027.
