Oil retreats as US-Iran truce talks advance

Oil prices fell about 2 per cent on Friday as hopes for a negotiated US-Iran truce outweighed fears that intensifying Houthi attacks on Saudi Arabia could further disrupt crude supplies.

Brent futures settled $2.28, or 2.1 per cent, lower at $104.32 a barrel, while US West Texas Intermediate crude dropped $2.20, or 2.3 per cent, to $92.41. Brent still gained less than 1 per cent for the week, while WTI posted a weekly decline.

The retreat followed disclosures that US and Iranian negotiators in New York were exploring a phased arrangement to end the seven-month conflict. The discussions centre on reopening the Strait of Hormuz, a vital route for global energy shipments, in exchange for steps by Washington to ease its economic blockade of Iran.

Iran has proposed reopening the strait within seven days if the United States lifts its naval blockade of Iranian ports, waives sanctions affecting Iranian oil sales and observes a ceasefire. Iranian Foreign Minister Abbas Araghchi outlined the proposal during discussions on the sidelines of the UN General Assembly, according to people familiar with the talks.

The diplomatic opening has reduced some of the risk premium embedded in crude prices, but traders remain wary because no binding agreement has been announced and major differences persist. A senior Iranian official said Tehran would not make concessions over its nuclear programme even if Washington accepted the Hormuz proposal, underscoring the limits of the negotiations.

Supply concerns remain acute in Saudi Arabia, where Houthi forces have stepped up missile and drone attacks. Saudi authorities said air defences intercepted several ballistic missiles, while the Houthis claimed strikes on energy infrastructure at Yanbu and other locations. Saudi officials have not confirmed damage from the latest claimed attacks.

Yanbu is particularly important because it is linked to Saudi Arabia’s East-West Pipeline, which allows crude to reach the Red Sea without passing through Hormuz. The pipeline resumed operations this week after damage from an earlier attack, but flows have been below full capacity and repairs are expected to take weeks.

France has said it will deploy soldiers, radar and air-defence systems to help protect the Yanbu oil terminal. Saudi Arabia has also held security discussions with Pakistan and Turkiye as Riyadh seeks to reinforce protection of critical infrastructure amid the escalation in Yemen.

The competing signals have produced sharp price swings. Brent rose 3.4 per cent on Thursday to $106.60 a barrel after an attack revived concern about Saudi supply, before reversing course on Friday as traders focused on the possibility of a diplomatic framework between Washington and Tehran.

Oil markets are also assessing the effect of a possible US restriction on diesel exports. President Donald Trump has said his administration is considering measures to curb exports as domestic diesel prices remain elevated, although Energy Secretary Chris Wright has argued that a ban would be ineffective and could raise prices for gasoline and jet fuel.

Any restriction on US diesel shipments could tighten international fuel markets already strained by disruptions linked to conflicts in the Middle East and Ukraine. The United States is a major exporter of refined products, and analysts have warned that curbing overseas sales could prompt refiners to reduce output rather than materially lower domestic prices.

The Strait of Hormuz remains the central market variable. Roughly a fifth of global oil and gas shipments normally move through the waterway, and restrictions since the conflict began have forced producers, refiners and shipping companies to rely on costlier alternative routes and limited bypass capacity.

Saudi Arabia has been trying to increase exports through the Red Sea while also moving some barrels through Hormuz when conditions permit. The kingdom’s ability to sustain those flows has become more important as attacks threaten infrastructure designed to provide an alternative to the strait.