The benchmark West Texas Intermediate crude oil traded around $72 on Friday, up 0.42% on the day, but remained in a consolidation phase after reaching a two-week high earlier this week.
Investors are assessing mixed signals from the Middle East, balancing ongoing military tensions against renewed diplomatic efforts.
Market sentiment improved slightly after a US official confirmed that technical talks with Iran remain ongoing despite President Donald Trump’s comments that the memorandum of understanding with Tehran was no longer in effect.
Reuters also reported that Qatari negotiators are in Iran to meet with Iranian officials in an effort to de-escalate tensions and create conditions for broader negotiations to continue, in coordination with the US. According to a source cited by Reuters, the talks are focused on implementing the US-Iran MoU and addressing the disputes that triggered the recent escalation, including navigation issues in the Strait of Hormuz.
Despite diplomatic progress, the geopolitical risk premium remains in place. Strikes between the U.S. and Iran continue, keeping concerns over potential energy supply disruptions alive.
Meanwhile, Rabobank noted that oil traffic through the Strait of Hormuz remains significantly below normal levels, while war risk insurance costs continue to rise, factors that could limit further downside in oil prices.
On the fundamental side, the latest projections from the International Energy Agency (IEA) also provide support for the market. The agency expects worldwide oil demand to increase by 1.2 million barrels per day YoY in the fourth quarter.
The IEA also forecasts a significant increase in oil supplies this year if transit conditions improve, while lowering its outlook for Russian oil production due to attacks on the country’s energy infrastructure.
Investors also remain focused on the outlook for the Federal Reserve. Interest rates staying higher for longer could weigh on worldwide economic growth and limit oil demand, although developments in the Middle East continue to be the main driver of oil prices in the near term.
(Source: OANDA)
