Oil prices fell sharply on Friday and headed toward a third consecutive weekly loss.
Improving shipping traffic through the Strait of Hormuz and growing optimism over a possible U.S.-Iran peace agreement reduced concerns about major supply disruptions.
However, a recent attack on a cargo vessel near Oman kept geopolitical risks in focus.
Brent and WTI Oil Prices Decline
Brent crude futures for August delivery fell 1.4% to $74.19 per barrel by 02:10 ET, or 06:10 GMT.
West Texas Intermediate crude futures dropped 1.6% to $70.77 per barrel.
Both Brent and WTI were on course to lose approximately 7% during the week. The decline extended the sell-off that followed the preliminary U.S.-Iran peace agreement announced the previous week.
Oil Erases Most Iran Conflict Gains
Oil prices have now surrendered most of the gains recorded since the conflict with Iran began.
At the height of the crisis, crude prices climbed above $120 per barrel as traders feared that regional fighting could severely disrupt global energy supplies.
However, those concerns have eased as more vessels resume their journeys through the Strait of Hormuz.
Brent crude has also fallen significantly from the levels above $90 per barrel recorded earlier in the month.
Cargo Ship Attack Briefly Lifts Oil
Both major oil benchmarks gained more than 2% during the previous session after a projectile struck a cargo vessel near the Strait of Hormuz.
The incident renewed concerns about the security of one of the world’s most important routes for global energy shipments.
The United Nations’ International Maritime Organization later suspended efforts to help vessels and crews travel safely through the area.
U.S. officials said Iran had fired on the ship. The allegation raised fresh doubts about the durability of the preliminary peace agreement between Washington and Tehran.
Strait of Hormuz Traffic Continues to Improve
Despite the attack, traders remained focused on the continued recovery in oil shipments through the Strait of Hormuz.
ING analysts said market momentum still appeared to favour lower oil prices because crude flows through the waterway continued to increase.
Shipments through the strait rose to their highest level since the conflict began earlier in the year.
The recovery has reduced fears of an immediate supply shortage and weakened the geopolitical risk premium built into oil prices.
Rising Shipments May Be Temporary
ING analysts warned that the increase in traffic may not fully reflect a lasting recovery in normal oil exports.
Much of the recent rise reportedly came from vessels that had been stranded in the Persian Gulf and were finally able to leave.
Therefore, shipping volumes could decline again once those delayed vessels have completed their journeys.
Markets will need to determine whether regular crude shipments can remain stable after the temporary backlog clears.
U.S.-Iran Peace Hopes Pressure Crude Prices
Traders are increasingly betting that a broader agreement between the United States and Iran could restore more reliable energy flows from the region.
A lasting settlement would reduce the risk of shipping disruptions and lower the possibility of a severe global oil supply shock.
That outlook has placed downward pressure on crude prices despite the continuing possibility of isolated attacks.
Oil Market Outlook Remains Uncertain
The near-term direction of oil prices will likely depend on developments surrounding the U.S.-Iran peace process and shipping conditions in the Strait of Hormuz.
A sustained recovery in tanker traffic could push prices lower by removing more of the geopolitical risk premium.
However, further attacks on vessels or signs that the peace agreement is weakening could quickly revive supply concerns and support oil prices.
