Oil prices moved lower on Friday as traders took profits following a rally of more than 25% in two weeks. However, concerns about further supply disruptions remained elevated as the Middle East conflict continued to threaten two critical shipping routes.
Crude oil has climbed sharply since the breakdown of the temporary peace agreement between the United States and Iran. The rebound has renewed fears that higher energy costs could fuel inflation and push central banks toward tighter monetary policy.
Brent and WTI Retreat After Powerful Rally
At 15:37 ET, or 19:37 GMT, September Brent crude futures fell 4.2% to $96.46 per barrel.
September West Texas Intermediate futures declined 3.2% to $89.22 per barrel.
Despite Friday’s pullback, both benchmarks remained significantly higher over the previous two weeks. Since July 10, Brent had surged 26.9%, while WTI had gained 25.1%.
The decline therefore appeared to reflect profit-taking rather than a clear end to the broader rally.
Oil Rally Revives Inflation Concerns
The rapid increase in crude prices has brought inflation risks back into focus.
Higher energy costs can increase transportation, manufacturing and household expenses. As a result, the oil rally has raised concerns that inflation could remain elevated for longer than expected.
These fears have been visible in the U.S. government bond market. Treasury yields have risen as investors sold bonds and increased their expectations of future Federal Reserve interest-rate hikes.
A prolonged rise in oil prices could make it more difficult for the Federal Reserve to ease monetary policy.
Red Sea Attacks Threaten Saudi Oil Shipments
Iran-backed Houthi militants in Yemen said they had attacked Saudi Arabian tankers in the Red Sea.
The development increased concerns about the safety of vessels travelling through the Bab el-Mandeb Strait. This passage connects the Red Sea with the Gulf of Aden and serves as a major route for global energy shipments.
The Strait of Hormuz is also facing serious security risks.
With both waterways under pressure, fears of possible oil supply disruptions have intensified. Brent crude moved above $100 per barrel during the previous session for the first time since May.
Strait of Hormuz Traffic Falls Sharply
Shipping-data provider Kpler reported mixed maritime activity across the two major waterways on Thursday.
Confirmed crossings through the Strait of Hormuz fell to six, representing a 60% decline from the previous day.
Meanwhile, traffic through the Bab el-Mandeb Strait increased to 49 confirmed crossings.
These included five sanctioned vessels, 11 ships linked to the shadow fleet and four vessels travelling with limited tracking visibility.
The sharp decline in Hormuz traffic highlighted the growing caution among shipping operators.
Some Vessels Resume Their Journeys
Kpler said several vessels that had previously reversed direction in the Gulf of Aden and the Red Sea eventually completed their crossings.
However, other ships remained on hold after making earlier U-turns.
The data suggested that some shipping companies were cautiously returning to the region. Nevertheless, operators continued to assess the security situation before committing vessels to the affected routes.
This selective return to activity indicates that normal shipping conditions have not yet been restored.
Limited Oil Supply Cushion Supports Prices
Adam Turnquist, chief technical strategist at LPL Financial, said the oil rebound was being driven by more than geopolitical concerns.
Improving technical momentum and heavily concentrated bearish positions have also supported prices.
At the same time, threats to two major shipping routes and historically low strategic inventories have made the market more sensitive to potential supply disruptions.
When inventories are limited, even a relatively small interruption can create a much stronger price reaction.
China Demand Could Limit the Rally
Several factors could still slow the increase in oil prices.
Weaker demand from China may reduce pressure on the global market. A return to meaningful negotiations between the United States and Iran could also lower the geopolitical risk premium.
However, the limited supply cushion means oil prices may remain supported and volatile until maritime activity normalizes and global inventories begin to recover.
As a result, traders are likely to remain highly sensitive to reports involving shipping routes, military action and diplomatic negotiations.
U.S.-Iran Conflict Continues
The fighting between the United States and Iran showed few signs of easing.
U.S. Central Command said it had completed a 13th consecutive night of strikes against Iran.
Tehran responded by targeting American military bases, mainly in Bahrain, Kuwait and Jordan.
The continued military exchange has increased fears that the conflict could spread further across the region and create additional risks for global oil production and transportation.
Ceasefire Efforts Face Uncertainty
Diplomatic efforts to end the conflict also appeared to be struggling.
The New York Times reported that Iran had rejected a U.S.-backed ceasefire proposal delivered by Iraqi Prime Minister Ali al-Zaidi. The report cited Iranian and Iraqi officials.
According to the newspaper, Tehran was unwilling to accept a temporary agreement that failed to resolve the dispute over control of the Strait of Hormuz.
The proposal was reportedly the only active ceasefire plan under consideration.
However, the Iraqi prime minister’s office rejected the report. It described the claims as entirely unfounded and unrelated to reality.
Oil Market Remains Vulnerable to Supply Shocks
Friday’s decline offered some relief after the sharp two-week rally. Nevertheless, the broader oil-market outlook remains uncertain.
Threats to the Strait of Hormuz and the Bab el-Mandeb Strait continue to place global energy supplies at risk. Meanwhile, low inventories and ongoing military action have reduced the market’s ability to absorb unexpected disruptions.
Oil prices could therefore remain volatile until shipping activity returns to normal, diplomatic progress emerges and energy inventories begin to recover.
