Oil prices moved lower for a second consecutive session on Friday after U.S. President Donald Trump abandoned plans for military action against Iran, easing concerns that the conflict could escalate further following a series of retaliatory attacks earlier in the week.
By 0640 GMT, Brent crude futures had fallen $2.11, or 2.3%, to $88.27 per barrel, while U.S. West Texas Intermediate crude was down $1.90, or 2.2%, at $85.81 per barrel.
Trump Signals Potential Diplomatic Breakthrough
The latest decline in oil prices followed comments from Trump on Thursday indicating that negotiations with Iran had advanced sufficiently to avoid planned military strikes.
The U.S. president said discussions were progressing and suggested that a peace agreement capable of reopening the Strait of Hormuz to international shipping could be signed as early as this weekend, although Iranian officials stressed that no final decision had yet been reached.
According to IG market analyst Tony Sycamore, “While this could, of course, be yet another false dawn, the market’s reaction has been both swift and decisive.”
He added that despite the recent pullback in crude prices, “as long as the price can hold above support in the low $80s, the risks remain firmly skewed to the upside”.
Strait of Hormuz Remains a Key Focus
The Strait of Hormuz continues to sit at the centre of market attention due to its critical role in global energy transportation.
On Thursday, Iran declared “the closure” of the strategic waterway, where shipping activity had already been significantly restricted for months. Tehran warned that any vessel attempting to pass through the strait could face military action.
Normally, around one-fifth of global oil and liquefied natural gas shipments move through the Strait of Hormuz, making any disruption a major concern for energy markets worldwide.
Iranian state media reported on Friday that the country’s forces had blocked a tanker from passing through the strait without prior coordination.
However, the U.S. military stated via social media that commercial vessels continued to transit the waterway.
Analysts Warn Against Excessive Optimism
Despite the market’s positive reaction to diplomatic developments, analysts cautioned that significant risks remain.
In a note released on Friday, analysts at ING said: “We would be cautious about assuming that the extension of the ceasefire is a done deal. Even if it is, it could be fragile. And clearly, if nuclear talks do not progress, it could very easily fall apart.”
The bank also warned that prolonged restrictions on oil flows could trigger a renewed rally in prices later this summer.
“We believe the market reaches an inflection point in late July if we do not see oil flows resuming before then. This is when inventory levels and seasonally stronger demand push prices significantly higher towards $120-130 per barrel.”
OPEC Cuts 2026 Demand Growth Outlook
Separately, the Organization of the Petroleum Exporting Countries revised down its expectations for global oil demand growth in 2026.
The producer group lowered its forecast to 970,000 barrels per day from a previous estimate of 1.17 million barrels per day, marking the second consecutive downward revision.
However, OPEC expressed greater confidence in longer-term demand prospects and raised its outlook for 2027.
The organisation now expects global oil demand to increase by 1.73 million barrels per day in 2027, an upward revision of 190,000 barrels per day from its previous forecast.
Market Balances Demand Outlook Against Geopolitical Risks
While weaker demand forecasts have added pressure to oil prices, traders remain focused on geopolitical developments in the Middle East.
The prospect of a diplomatic agreement between Washington and Tehran has helped calm immediate supply concerns, but uncertainty surrounding the future of the Strait of Hormuz and ongoing nuclear negotiations continues to leave energy markets vulnerable to renewed volatility.