Oil prices concluded the week with substantial gains, despite a Friday dip, as geopolitical tensions in the Middle East escalated. Brent crude futures neared $108 and WTI surpassed $104, marking the first time above $100 in months.
Market participants are closely watching diplomatic efforts, particularly Iran’s planned talks with Gulf states in Oman, which could potentially ease supply concerns. However, analysts caution that while short-term price spikes are possible, the long-term outlook may see demand moderated by increased oil elasticity and the growth of renewable energy sources.
Oil Prices Surge Weekly Amid Mideast Tensions; Diplomacy Offers Glimmer of Hope
Oil prices experienced a notable retreat on Friday, but concluded the week with significant gains, breaching the $100 per barrel mark for the first time in months. The volatility was largely driven by escalating tensions in the Middle East, though a potential diplomatic breakthrough offered a slight reprieve.
Brent crude futures, the global benchmark, settled down 2.8% at $104.61 a barrel. Meanwhile, U.S. West Texas Intermediate (WTI) closed 2.4% lower at $100.05 per barrel. This decline followed a surge where Brent crude peaked around $108 a barrel and WTI surpassed $104 on Thursday.
The temporary dip in prices occurred subsequent to reports from Iranian state media indicating that Tehran would engage in discussions with Gulf states in Oman regarding the Strait of Hormuz. This development suggests a potential de-escalation of diplomatic tensions, even after a week marked by significant escalation.
Crude oil futures performance.
Brent futures recorded a weekly gain of 8.7%, comfortably settling above the critical $100 mark. WTI also posted a strong weekly increase of 9.4%. Friday's pullback interrupted a five-day rally for Brent crude and an eight-day winning streak for WTI.
The market has been on edge, anticipating a prolonged conflict in the Middle East. This sentiment was amplified by a Wall Street Journal report detailing White House advisors' discussions with President Donald Trump about the possibility of hostilities extending beyond his current term. Trump has previously stated that the conflict would conclude after the U.S. midterm elections, predicting a subsequent drop in oil and gas prices.
"Once again, it is geopolitical fears driving everything," noted Jim Reid of Deutsche Bank in a Friday morning research note. "In terms of the latest Middle East headlines, yesterday saw growing concerns over the safety of Red Sea shipping, and the potential knock-on effects for Saudi oil exports, as Houthi rebels captured Yemen's port city of Mokha, which is located close to the Bab el-Mandeb Strait on the southern end of the Red Sea. The mood also wasn't helped by news that Saudi Arabia's oil output has fallen to its lowest since 1990."
Tamas Varga, an analyst at PVM Oil Associates, highlighted the investor's dilemma: determining whether the current supply deficit is structural or temporary. "While further spikes cannot be ruled out and re-visiting the April peak of $126 remains a possibility as global and regional oil inventories keep drawing down, it must be noted that [the] higher oil prices climb, the more demand will be obliterated," he cautioned. Varga added that the current situation differs from the 1990 Gulf War, as oil is more elastic today, with renewable energy sources capable of replacing significant portions of demand, especially in electricity generation.
"It appears only a question of time that the gap between global oil supply and demand will narrow, either by supply increasing in case of a truce or demand decreases, due to the widespread use of alternative energy sources," Varga concluded. "In the interim, further oil price strength is very much possible, but it would be surprising to see it lasting beyond 2026."
Correction: An earlier version of this article misstated the price movement for U.S. West Texas Intermediate. It was down 2.75% to $99.66 per barrel.
