LONDON: Oil prices dropped on Friday as investors evaluated reports that Iran and Gulf states are moving closer to a temporary agreement to reopen the Strait of Hormuz, a key global energy shipping route, as part of broader efforts to pave the way for negotiations aimed at ending the Iran war.
Brent crude futures slipped 75 cents, or 0.9%, to $81.74 a barrel by 1141 GMT, while US West Texas Intermediate (WTI) crude fell 66 cents, or 0.9%, to $76.63 a barrel.
The decline followed a sharp rally on Thursday, when oil prices surged by more than $3 per barrel after Iran reviewed legislation that would prohibit US and Israeli ships from transiting the Strait of Hormuz.
Before the conflict began in late February, the strategic waterway handled around one-fifth of global oil and liquefied natural gas shipments.
Hopes for diplomatic breakthrough
Earlier this week, crude prices retreated as hopes for a diplomatic breakthrough gained momentum. Both Brent and WTI are now on track to post weekly losses of about 9%.
Despite the recent optimism, analysts cautioned that tensions between Iran and the United States remain unresolved.
Tehran seeks transit fees
According to a senior Iranian official, Tehran is seeking transit fees of between 5% and 7% of cargo values for vessels using the Strait of Hormuz. Oman has proposed a fee of about 3%, while the United States continues to oppose any transit charges.
Industry sources said the proposed arrangement faces significant hurdles, including U.S. sanctions and insurance restrictions that could complicate the payment of such fees.
Also Read: Stock Markets Stall, Oil Prices Fall on Hopes of US-Iran Hormuz Deal
“The structure of the Iran-Oman agreement in its current form and the power it yields to Iran is nothing that President Donald Trump can accept politically,” said Bjarne Schieldrop of SEB Research. “He would face considerable political backlash at home if he did.”
Market experiencing sharp swings
Vandana Hari, founder of oil market consultancy Vanda Insights, said the market has experienced sharp swings in sentiment this week as reports of a possible agreement emerged. However, she noted that investors still lack clarity on the conditions required to finalize any deal.
Market participants are also awaiting U.S. nonfarm payrolls data due later on Friday, which could provide fresh insight into the Federal Reserve’s interest rate outlook. Higher interest rates tend to increase borrowing costs, potentially slowing economic activity and reducing demand for oil.
