Oil Prices Decline Amid Optimism Over US-Iran Diplomatic Efforts and Hormuz Developments

Oil Prices Fall as US-Iran Talks Stall Ahead of Weekend

Oil prices edged lower in thin trading on Friday, as uncertainty over future supply contributed to sharp price swings and depressed trading volumes. West Texas Intermediate (WTI) fell as much as 5.5% before retracing partly to trade near $102. The markets are closed in many nations, including China, Singapore, Germany, France, and Brazil, for Labor Day.

The unresolved conflict between the US and Iran, which has upended global energy flows, continues to weigh on oil prices. Despite Iran's statement that it is ready to continue diplomatic efforts, US President Donald Trump sounded a more pessimistic tone, saying Iran is "asking for things that I can't agree with." This has led some traders to peel back risk ahead of the weekend.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

Control of the Strait of Hormuz has emerged as a key leveraging tactic between the warring sides, with its effective closure by both Iran and the US since the start of the conflict ushering in a global energy crisis and fears of demand destruction and a hit to global growth. WTI is still on track for a weekly gain of about 11% due to the unresolved conflict and the blockade of oil exports from the Persian Gulf.

The market has started to wake up to the reality that it might take longer before oil starts flowing through the strait again, said Jens Naervig Pedersen, a strategist at Danske Bank AS. Chevron Corp. Chief Executive Officer Mike Wirth expressed concern about global oil supplies running dry and the threat to fuel demand. Oil briefly surged to a four-year high on Thursday as the deadlock in negotiations extended the near-total closure of the Strait of Hormuz.

Japan's top currency official said authorities in Tokyo are maintaining readiness to intervene in the crude oil futures market, where speculative moves have been affecting the currency. ConocoPhillips is warning of imminent "critical shortages" of oil for some nations as the war enters its third month, with the supply pinch likely to worsen in June. The gap between paper and physical prices is narrowing as tangible domestic tightness begins to materialize for the first time since the war began.