Oil Prices Continue to Decline Amid Improved Supply Conditions
Oil prices experienced a further decline on Friday, with Brent crude falling by 4 percent and recording another significant weekly drop. This decrease occurred despite recent tensions between the United States and Iran, which saw both nations exchanging fresh strikes. The price of Brent, which serves as a benchmark for two-thirds of the world's oil, is now below its level before the US-Iran conflict began on February 28.
Brent crude closed at $72.87 on February 27, but it fell by 4.34 percent to settle at $71.99 per barrel. Similarly, West Texas Intermediate (WTI), the gauge that tracks US crude, dropped by 3.74 percent to $69.23 per barrel, down from its closing price of $67.02 on February 27. Over the past week, Brent and WTI have decreased by approximately 10.6 percent and 8.7 percent, respectively.
Ole Hansen, head of commodity strategy at Saxo Bank, noted that "with shipping traffic steadily improving through the Strait of Hormuz, traders are increasingly focused on a growing queue of cargoes waiting to move." He explained that millions of barrels are already loaded on tankers that were unable to leave the Gulf during the disruption, while hundreds of additional vessels remain positioned outside the region waiting to load. This situation could lead to a potential surge of supply entering the market at a time when buyers are showing signs of caution.
Peace Negotiations and Regional Tensions
Crude prices have been declining steadily during peace negotiations between the US and Iran, as well as a fragile truce between Israel and Hezbollah in Lebanon. Washington and Tehran are working to strike a deal within 60 days under the terms of an initial agreement.
More ships are now able to transit the Strait of Hormuz, which typically handles about a fifth of the world's oil and gas. However, on Thursday, a cargo vessel was struck by a projectile off the coast of Oman, causing damage to its bridge. Fortunately, there were no casualties, according to the UK Maritime Trade Operations.
The incident led to an immediate increase in oil prices, although the gains were later erased. On Friday, the US Central Command announced that American forces had carried out strikes on Iran in response to what they called "unwarranted aggression."
Giovanni Staunovo, a strategist at Swiss bank UBS, stated, "Most of the increase in flows from the Gulf is outbound – ships exiting the strait. However, a significant increase in inbound flows requires shipping confidence to return, including safety assurances and mine clearance to allow insurance premiums to normalise."
He added, "Considering how slowly tankers move – basically at the pace of a fast bike – it will take a while for them to reach their loading facilities. Another challenge is that some of the tankers waiting outside the Gulf were diverted to other regions to pick up crude and refined products, so they would first need to unload their cargo before moving back to the Gulf."
Resumption of Oil Operations and Global Supply Trends
On Friday, Saudi Aramco resumed oil loading operations at its Ras Tanura terminal in the Gulf after an almost four-month halt, according to shipping data from LSEG. Meanwhile, oil exports from the UAE in early June recovered to nearly 85 percent of prewar levels, as the country used alternative shipping routes and pipelines, according to the International Energy Agency.
Record exports by the US have also contributed to easing energy supplies globally, keeping Asian and European markets better stocked. Additionally, the release of strategic reserves in Organisation for Economic Co-operation and Development countries has helped maintain supply stability.
Global Stock Markets Retreat
Global stock markets retreated on Friday as a tech shares sell-off and a slump in chip stocks continued. On Wall Street, indices edged lower, with the Dow Jones Industrial Average and S&P 500 virtually flat, while the tech-rich Nasdaq Composite declined 0.24 percent.
Apple rallied more than 3 percent, rebounding from Thursday's drop after it announced that it was raising the prices of some MacBooks and iPads amid soaring chip prices. In Europe, London's FTSE 100 settled 0.2 percent lower, dragged by banking and energy stocks. Frankfurt's DAX fell nearly 1.3 percent, and Paris's CAC 40 gave up 0.55 percent.
Earlier in Asia, profit-taking in artificial intelligence stocks hit Chinese markets, with Hong Kong's Hang Seng index dropping 1.9 percent to a one-year low and the Shanghai Composite closing 2.1 percent lower. Tokyo's Nikkei slumped 4.15 percent, and SoftBank Group, a major backer of OpenAI, dropped more than 12 percent after it was reported that ChatGPT maker was delaying its initial public offering. Seoul's Kospi slid nearly 6 percent, also on profit-taking.
Gold Prices Rise Amid Market Volatility
Gold climbed back above $4,000 but still posted another weekly loss on a weaker dollar and bets for a US Federal Reserve interest rate hike waned following higher inflation data. The precious metal, which fell to $3,900 on Thursday, added nearly 1 percent to $4,071.95 an ounce, but retreated about 1.7 percent from last week's close.
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