Oil prices pulled back from four-month highs at the end of the week, but escalating threats to two of the Middle East’s most important shipping routes kept the market’s geopolitical risk premium firmly in place.
Brent crude settled Friday down 2.8% at $104.61 a barrel, while West Texas Intermediate fell 2.4% to $100.05. Both remained sharply higher on the week after Brent traded above $108 and WTI topped $104.
The retreat followed signs of possible diplomacy, with Iranian and Gulf officials expected to meet in Oman on Monday to discuss shipping through the Strait of Hormuz.
US President Donald Trump also said he expected the Iran war to end shortly after November’s mid-term elections, adding that oil would “come tumbling down” once hostilities cease.
Supply risks nevertheless remain elevated, given Saudi Arabia shut its 7 million-barrel-a-day East-West pipeline as a precaution after drone attacks, while Houthi advances around Yemen’s Red Sea coast have raised concerns over traffic through the Bab el-Mandeb Strait.
ING analysts said oil markets were repricing both the duration and severity of the conflict, with flows through Hormuz remaining “well below pre-war levels”.
The potential upside remains substantial if the disruption deepens. RBC Capital Markets Helima Croft, in a note, highlighted the possibility that Brent could rise above $120 a barrel by year-end if fighting continues
