Oil prices extended their decline on Friday after US President Donald Trump said a peace agreement with Iran could be signed as soon as this weekend, raising hopes that disruptions to Middle Eastern energy supplies may eventually ease. Brent crude fell nearly 2% at the open to $88.79 a barrel after ending the previous session at a two-month low, and is now trading at $86.70. US benchmark West Texas Intermediate traded near $89 a barrel.
The latest drop comes after a volatile week in which Trump alternated between threatening fresh military action against Iran and suggesting that a diplomatic breakthrough was imminent. Speaking at the White House, Trump said a deal could be signed in Europe as early as this weekend and claimed Iran’s leadership had agreed to its broad contours, though he acknowledged that negotiations were not yet complete.
Tehran has not publicly confirmed any agreement. Iran’s semi-official Fars news agency reported that no final text has been approved by the country.
At the centre of investor attention is the Strait of Hormuz, one of the world’s most critical energy chokepoints. The conflict has resulted in a near-total closure of the waterway, disrupting flows of crude oil, refined fuels and natural gas and driving sharp volatility across global energy markets. A successful agreement could pave the way for shipping to resume through the strait and reduce concerns about a prolonged supply shock.
Trump said any deal would include commitments by Iran not to pursue nuclear weapons and would help restart commercial shipping through Hormuz.
The prospect of a reopening has prompted traders to unwind some of the geopolitical risk premium that had pushed oil prices sharply higher earlier in the conflict.
Despite the market’s optimism, analysts caution that a peace deal would not immediately restore normal energy flows. Even if an agreement is reached, mines in the Strait of Hormuz would need to be cleared, damaged energy infrastructure repaired and shut-in oil fields gradually brought back online. Some of these processes could take months.
There are already signs that the conflict has tightened physical markets. Fuel inventories in Singapore have fallen to their lowest level since 2013, while US crude stockpiles have declined sharply over the past five weeks. Some tankers have resumed limited transit through Hormuz, but volumes remain well below pre-conflict levels.
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