Oil Dips but Heads for Weekly Surge Amid Supply Fears; US Diesel Reaches Record High
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Oil prices edged lower on Friday but remained on track for a weekly gain of over 9%, while U.S. diesel prices soared to record highs amid ongoing concerns over Middle East shipping disruptions.
By mid-morning, Brent crude futures fell $2.46 (2.29%) to $105.17 a barrel, while U.S. West Texas Intermediate (WTI) crude dropped $2.44 (2.38%) to $100.04 a barrel. Earlier in the session, both benchmarks had reached their highest levels since mid-May.
The intraday reversal occurred after reports emerged that Middle Eastern foreign ministers are attempting to negotiate a temporary agreement with Iran regarding shipping management through the Strait of Hormuz. This followed a sharp 6% surge in Brent and WTI on Thursday driven by escalating attacks on regional vessels.
Market analysts noted that while immediate panic eased on Friday, high volatility and upside risks persist. Satellite imagery from Thursday revealed smoke near Saudi Arabia’s East-West Pipeline, a crucial alternative route bypassing Hormuz. Additionally, the International Energy Agency (IEA) reported that Saudi crude supply fell by 2.3 million barrels per day (bpd) in August to 6 million bpd—the lowest level in over 30 years—following attacks on its energy infrastructure.
Further stoking supply anxieties, Yemen’s Houthis reportedly reached Perim Island in the Bab el-Mandeb Strait, threatening another key maritime corridor. This followed an announcement by Iran that it had targeted 10 ships near the Strait of Hormuz on Wednesday in retaliation for the U.S. striking five Iranian tankers. Ship-tracking data showed transits through the Strait of Hormuz dropped to just seven vessels on Thursday, down from 11 the day before.
On the macroeconomic front, two European Central Bank officials indicated that further interest rate hikes remain on the table if energy-driven inflation continues to pressure the euro zone economy.
The geopolitical friction, combined with Ukrainian drone strikes on Russian oil refineries, pushed the average U.S. diesel price past $6 a gallon for the first time on Thursday. Analysts expect refined products to experience sustained upward pressure as long as shipping constraints in the Gulf and Russian refinery outages persist. In response to these tight supplies, Commerzbank raised its year-end Brent crude forecast to $85 a barrel, while lifting its year-end projections for diesel to $1,200 a ton and jet fuel to $1,230 a ton.
