Oil took a sudden turn lower Friday after a report surfaced that Pakistan is trying to get the U.S. and Iran back to the negotiating table - with China's help.
U.S. West Texas Intermediate crude futures dropped 4.3%, landing at $88.27 a barrel. The international benchmark, Brent crude, fell nearly 5% to $95.73.
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Before the drop, U.S. crude had gained about 7% for the week. Brent was up more than 8%.
The catalyst was a Reuters story quoting a Pakistani government official, who stated that Pakistan and China are collaborating to revive negotiations involving the United States and Iran. The official told Reuters that Beijing is displeased because Iran's strikes against neighboring Gulf countries, along with the danger posed to the Strait of Hormuz, are damaging Chinese economic interests.
U.S. Central Command announced that it had finished its thirteenth straight night of attacking Iranian targets, focusing on command posts, drone depots, communication hubs, coastal monitoring stations, and naval resources. Currently, over 50,000 American military personnel are deployed throughout the Middle East. On Thursday, President Trump informed Axios that he is weighing "a massive attack" on Iran - larger than any previous strike - and is nearing a decision.
The Iranian Revolutionary Guard stated on Thursday that it had assaulted U.S. military installations at a base in Jordan. Yemen's Iran-aligned Houthi group asserted that it hit two Saudi oil tankers in the Red Sea. U.S. Central Command said the Strait of Hormuz remains open for transit, with commercial vessels continuing to navigate with U.S. military support.
In a note on Friday morning, capital.com senior market analyst Daniela Hathorn stated, "Growing instability around key shipping routes had rebuilt a 'sizeable geopolitical risk premium' into oil markets." She added that "investor sentiment has been dampened by continued disruption in the Red Sea, where attacks on commercial vessels have compounded concerns over global trade and energy security." She also said that "combined with tensions around the Strait of Hormuz, the developments have reinforced the view that geopolitical risks are unlikely to fade anytime soon, keeping energy markets tight and inflation risks elevated."
Meanwhile, in a Thursday note, UBS Global Wealth Management strategist Giovanni Staunovo argued that investors might be overvaluing the oil market's rebound from the conflict. "We continue to expect the production recovery process in the Middle East to be slower than the market anticipates, as it requires an increase in inbound vessels," he wrote. "With the conflict resuming, those flows remain depressed. This should keep the oil market tight and prices supported." UBS forecasts Brent crude at $85 per barrel by year-end.
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