Oil prices are set to finish the week above $100 a barrel for the first time since mid-May, fueled by escalating tensions along key Middle East shipping routes and a record high in U.S. diesel prices. Brent crude futures and U.S. West Texas Intermediate crude both saw significant gains throughout the week, though they experienced a slight dip on Friday amid reports of diplomatic efforts.
Brent crude futures fell 1.53% to $105.98 a barrel, while U.S. West Texas Intermediate crude dropped 1.33% to $101.12 a barrel by 0758 GMT on Friday. These benchmarks had risen more than 6% on Thursday and were still trading more than 10% higher on a weekly basis. The moderate decline on Friday was attributed to news that Middle Eastern foreign ministers are attempting to negotiate a temporary deal with Iran concerning shipping through the Strait of Hormuz.
Attacks in the critical waterway have heightened fears of extended supply disruptions. Iran reported attacking 10 ships near the Strait of Hormuz on Wednesday, following a U.S. strike on five Iranian oil tankers. Iran's Islamic Revolutionary Guard Corps has indicated it would intensify its response to any further attacks. Preliminary ship-tracking data showed a decrease in vessel transits through the Strait of Hormuz, well below its 10-day average.
The Strait of Hormuz is a vital chokepoint, historically handling about one-fifth of the world's daily oil and liquefied natural gas supplies. The recent conflict has further complicated regional traffic, with Iran-aligned Houthis seizing control of Yemen’s port of Mocha, posing an additional threat to Red Sea shipping lanes. Analysts note that attacks originating from Yemen on Saudi energy facilities represent an escalation, raising concerns about broader, prolonged disruptions in the Middle East.
The International Energy Agency anticipates that global oil supply and demand will decline more than previously estimated this year, as the ongoing conflict delays the return to normal supply flows from the Middle East. This outlook exacerbates existing supply concerns.
Supply disruptions stemming from the conflict, coupled with Ukrainian attacks on Russian refineries, have driven the U.S. national average diesel price past $6 a gallon for the first time, according to GasBuddy. This "one-two punch" to refined products like diesel is expected to keep their prices elevated as long as shipping constraints in the Gulf and Russian refining outages persist.
President Donald Trump has maintained a firm stance on actions against Iran. He has suggested potential further strikes near Iran's Natanz uranium enrichment facility but indicated an expectation that the conflict might conclude shortly after the November midterm elections.
In related international developments, China's state planner announced an increase in retail price caps for gasoline and diesel, effective September 12.