Oil Prices Retreat as Geopolitical Tensions Ease Slightly

Global oil prices retreated on Friday, erasing some of the ground gained during a volatile week, yet Brent crude futures remained entrenched above the critical $100 per barrel threshold for the first time since May. The pullback snapped winning streaks of five days for Brent and eight days for West Texas Intermediate (WTI).

As of late afternoon trading, Brent crude futures were down approximately 2.45% to $105.03 a barrel. U.S. WTI crude posted a smaller decline, falling 2.75% to trade at $99.66 per barrel. The dip came after both benchmarks surged earlier in the week, with Brent briefly touching $108 and WTI exceeding $104 on Thursday.

The modest cooling in prices followed reports that Iran intends to engage in diplomatic talks with Gulf states in Oman regarding the security of the Strait of Hormuz. Iranian state media confirmed the meeting, signaling a potential thaw in rhetoric despite a week of sharp escalation in the region.

Market participants continue to price in significant geopolitical risk. A recent report indicated that White House advisors have discussed with President Donald Trump the possibility that the conflict could extend beyond his current term. However, Trump has publicly stated that he expects the conflict to resolve following the U.S. midterm elections in November, predicting that oil and gas prices would drop accordingly.

Jim Reid, an analyst at Deutsche Bank, emphasized that geopolitical anxiety remains the primary driver. He noted that concerns intensified Thursday over the safety of Red Sea shipping lanes after Houthi rebels captured the Yemeni port city of Mokha, located near the Bab el-Mandeb Strait. Compounding these fears, reports emerged that Saudi Arabia’s oil output has plummeted to its lowest level since 1990.

Looking ahead, analysts are debating whether the current supply deficit is permanent or temporary. Tamas Varga at PVM Oil Associates warned that while further price spikes are possible—and a return to the April peak of $126 cannot be ruled out—as inventories continue to draw down, higher prices will inevitably suppress demand. He argued that the current market is more elastic than during the 1990 Gulf War, with renewable energy increasingly capable of displacing oil in electricity generation.

“It appears only a question of time that the gap between global oil supply and demand will narrow, either by supply increasing in case of a truce or demand decreases, due to the widespread use of alternative energy sources,” Varga said. “In the interim, further oil price strength is very much possible.”