Key facts
- Oil prices declined on Friday due to improved supply flows through maritime chokepoints.
- Brent futures fell 1.44% to $87.75 a barrel, and WTI crude slipped 1.77% to $82.11 a barrel.
- Despite the daily drop, both benchmarks are poised for monthly gains, ending a two-month decline.
- Shipping data indicated increased traffic through the Bab el-Mandeb strait, while Strait of Hormuz traffic remained low.
- Geopolitical risks, including tensions in the Strait of Hormuz and threats to the Suez Canal, continue to influence the market.
Oil prices experienced a decline of over 1% on Friday, influenced by an increase in supply flowing through critical maritime chokepoints. This easing of supply constraints occurred despite a lack of significant progress in negotiations between the United States and Iran. Brent crude futures saw a 1.44% drop, settling at $87.75 a barrel, while U.S. West Texas Intermediate (WTI) crude futures decreased by 1.77% to $82.11 a barrel.
Despite the daily dip, both oil benchmarks are positioned for a monthly gain, marking an end to a two-month period of declines. Brent is on track to rise 21% for the month, and WTI is expected to gain 18%. Analysts suggest the market is now focusing more on shipping data than on geopolitical headlines, as flows have partially recovered following escalations since February.
Shipping data indicated that 25 commodity vessels passed through the Bab el-Mandeb strait on Thursday. However, traffic through the Strait of Hormuz remained subdued, with only two tankers transiting. Talks between Iran and Oman regarding the management of the Strait of Hormuz are ongoing, though Iran has rejected Oman's proposal for joint management.
Geopolitical risks persist, with Saudi Arabia aiming to lead a coalition to enhance defense cooperation in vital energy chokepoints like the Bab el-Mandeb strait, the Red Sea, and the Gulf of Aden. Higher security risks have led to increased freight costs and insurance premiums, embedding a geopolitical risk premium into oil prices. A recent drone strike causing fires on two gas vessels in Egypt's port of Damietta has introduced a new threat to shipping through the Suez Canal, a key export route for Saudi oil amidst the ongoing U.S.-Iran tensions. The conflict has significantly disrupted traffic through both the Bab el-Mandeb strait and the Strait of Hormuz, which previously handled about a fifth of global oil and LNG supplies.