Oil prices fell on Friday and posted their second consecutive weekly loss after the US and Iran said they were closing in on a peace deal.
US President Donald Trump on Thursday called off strikes on Iran and indicated the countries were on the verge of announcing a settlement to end the war. On Friday, Iranian Foreign Minister Abbas Araghchi said both sides had never been this close to an agreement. Pakistan's Prime Minister Shehbaz Sharif later said that a “final, agreed-upon text” of a peace agreement has been reached.
Brent, the benchmark for two-thirds of the world's oil, settled 3.37 per cent lower to $87.33 a barrel – the first time it closed the week below $90 since the first week of March. West Texas Intermediate, the gauge that tracks US crude, shed 3.23 per cent to end at $84.88 per barrel.
For the week, Brent and WTI, which both fell by more than 4 per cent earlier in the session, slid more than 6 per cent. Crude prices surged during the war that began on February 28, but Brent and WTI's gains have since fallen to about 20 per cent and 26 per cent, respectively.
“Crude prices are on track to post a second straight weekly loss as Mr Trump’s declaration that the Iran war is 'effectively over' and a potential deal to reopen the Strait of Hormuz have deflated the geopolitical risk that has kept prices elevated,” said Ahmad Assiri, market strategist at Pepperstone.
But he said Iran had not yet confirmed the deal and markets had heard similar proclamations from Mr Trump before without a definitive deal emerging. “Formal signing [of an agreement] is unlikely before early next week at the earliest, keeping weekend headline risk alive and leaving traders exposed to a reversal if the deal unravels or Tehran pushes back over the coming days,” Mr Assiri added.
On Thursday, Mr Trump said the US and Iran had agreed on a “great settlement” to end the conflict and that the deal could be signed within days.
He also said the strait, through which about a fifth of global crude and liquefied natural gas supplies normally flow, would reopen immediately after the signing of the deal. “The strait will officially open as soon as we sign, which could be soon, very soon, maybe over the weekend in Europe,” Mr Trump said.
Oil prices rose at the start of the week amid renewed strikes by the US on Iran, and attacks launched by Tehran on Kuwait and Bahrain. The US also attacked a ship in the Gulf of Oman that it accused of attempting to transport oil from Iran. The strike caused the deaths of three Indian sailors.
Oil prices are expected to remain volatile in the coming days, with developments in the Middle East affecting their trajectory, analysts said.
“While prices have eased since May to around $96 to $97 per barrel on signs of diplomatic progress between the US and Iran, volatility remains elevated and the market remains highly sensitive to developments in the region,” said Tiago Lacerda, an analyst at Axi.
He expects Brent to trade in the $85 to $95 per barrel range during the second half of the year before moving towards $79 to $89 per barrel by the end of the year, owing to the continued easing of tensions and gradual reopening of the strait.
A renewed escalation, however, could push prices back towards the $120 to $138 per barrel range recorded in April, he added.
Stock markets up
Major stock markets gained at the close on Friday, with Wall Street lifted by SpaceX's historic debut and hopes for the peace deal between Washington and Tehran.
SpaceX's stock jumped 19 per cent and closed at $160.95 – sending its value past $2 trillion and bringing controlling shareholder Elon Musk's net worth to about $1.1 trillion.
Investors are also looking forward to next week's meeting of the US Federal Reserve, which will be chairman Kevin Warsh's first at the helm. Markets are widely expecting interest rates to be held, or even raised – a reversal of expectations as soaring energy prices and elevated inflation changed the outlook of the world's biggest economy.
At the close on Wall Street, the S&P 500 added 0.5 per cent, the Dow Jones Industrial Average gained 0.7 per cent and the tech-rich Nasdaq Composite inched up 0.3 per cent.
In Europe, bourses gained on the US-Iran peace deal prospects. London's FTSE 100 climbed 1.6 per cent, while Frankfurt's Dax and Paris's CAC 40 both closed 1.8 per cent higher.
Earlier in Asia, Chinese stock markets rebounded amid the developments in the Middle East, with the Shanghai Composite gaining 1.1 per cent and Hong Kong's Hang Seng index jumping nearly 2 per cent.
Tokyo's Nikkei 225 soared almost 3 per cent, boosted by investor buying and chip stocks, on hopes the conflict will be coming to an end soon.
Gold, meanwhile, closed the week up but still posted a second weekly drop on the possibility of a Fed rate increase. The precious metal, a traditional hedge against inflation, added 2.75 per cent to $4,210.90 an ounce.
