Crude oil prices tumbled Friday after President Donald Trump announced progress toward a peace agreement with Iran, touching levels unseen since the crisis began in early March. Brent crude fell to near $85 a barrel in morning trading before settling around $87.50, a 3% drop on the day as markets priced in the possibility of reopening the strategically vital strait of Hormuz.
Trump halted planned military strikes against Iran late Thursday, citing productive diplomatic talks that could potentially clear the blockade over the weekend. Tehran indicated it had not finalized its position but acknowledged that significant portions of an agreement had been worked out.
The oil market's sharp reversal reflects just how much the geopolitical risk premium has dominated trading. When Iran effectively shut down the strait in March following US-Israeli military action, crude prices rocketed to $113 a barrel. Brent had been trading around $70 before the conflict erupted. The International Energy Agency later released 400 million barrels of emergency crude reserves to stabilize the market.
"Headlines are driving the market once again, as confidence grows that an eventual deal will be struck and the strait reopens," said Tamas Varga, analyst at PVM Oil Associates.
The sharp price decline also reflects broader cooling in energy markets beyond the strait dispute. China has cut oil imports, and producers have turned to covert shipping methods known as "dark transits" to circumvent traditional monitoring. These shifts have helped rebalance supply pressures that had sent prices soaring.
Stock markets echoed the optimism about de-escalation. European benchmarks rose Friday, with the pan-European Stoxx 600 up 1.5%, as traders anticipated that a reopened strait could fuel broader economic recovery. Chris Beauchamp, chief market analyst at IG, cautioned that final details still matter. "If the two sides could actually come to an agreement that reopens Hormuz, that would provide the perfect boost for a stock market rally that was beginning to look more than a little tired," he said.
Goldman Sachs maintained its expectation for oil to average $90 a barrel in the fourth quarter as flows normalize and countries rebuild depleted stockpiles. The investment bank, however, cut its 2027 forecast by $5 to $80 a barrel, citing expected production increases from the Americas and the UAE alongside softer demand projections.
The collapse from March's panic highs underscores how rapidly oil markets can swing on geopolitical developments. Any actual reopening of Hormuz would resolve one of the year's biggest supply shocks and validate traders' growing confidence that the worst of the crisis may be behind them.
Author James Rodriguez: "Trump's deal talk moves markets fast, but oil traders have been burned before on wishful thinking about Iran, so don't count the barrel as cheap until a deal is actually signed."
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