U.S. crude oil prices retreated below the $100 mark on Friday, yet remained near four-month highs, even as retail diesel costs surged to an unprecedented level. West Texas Intermediate October contracts dropped 2.5% to close at $99.86 per barrel, slipping under the psychological threshold after briefly trading above it earlier in the session.
Internationally, Brent crude’s November contract declined by 3% to $104.48. Despite the daily pullback, the global benchmark has climbed approximately 15% since the beginning of September.
According to data from AAA, average U.S. diesel prices hit $6.0556 a gallon, marking the first time the fuel has exceeded the $6 threshold. This represents a 63% increase compared to the same period last year. The price pressure is even more acute in California, where diesel has reached $7.9827 per gallon.
The price movements follow a September report from the International Energy Agency (IEA), which revised its demand forecast downward. The agency now projects that global oil demand will decrease by 2.5 million barrels per day this year, a steeper decline than the 1.6 million barrel reduction estimated last month.
The IEA also indicated that oil supply is expected to contract by 5.7 million barrels per day to an average of 100.7 million barrels per day for the year, with production recovery not anticipated until 2027. In August, production slipped by 1.6 million barrels per day month-on-month to 100.1 million barrels, constrained by continued shipping disruptions through key waterways.
Geopolitical tensions remain a central factor in market volatility. Reports indicate that Gulf foreign ministers plan to meet with Iranian officials, an initiative encouraged by Oman, to negotiate a temporary agreement securing shipping through the Strait of Hormuz. Meanwhile, Saudi Arabia informed OPEC members that its August crude output fell to its lowest level since 1990.
Escalating conflict between Saudi Arabia and Iran-backed Houthi rebels in Yemen has further strained supply routes. On Thursday, the Houthis seized control of the port city of Mokha. By Friday, sources reported that Houthi forces had reached the town of Dhubab, located on the Bab el-Mandeb Strait, a critical artery for global trade.
Patrick Munnelly, a market strategist at Tickmill Group, noted that the recent dip in oil prices reflects a shift in investor sentiment rather than a disappearance of risk. “It shows that the market has moved from pricing a sudden ‘Armageddon’ scenario to pricing a more continuous, probabilistic disruption,” Munnelly said. He added that while geopolitical risks continue to support prices, traders are reassessing whether the physical impact justifies the earlier panic premium.
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