Oil prices decline as markets await a potential US-Iran agreement to extend the ceasefire

Oil prices fell around 2% on Friday and were on track for their largest weekly loss since early April after reports indicated that the United States and Iran had reached a preliminary agreement on a possible extension of the ceasefire.

July Brent crude futures, which expire today, fell by $1.66, or 1.77%, to $92.05 per barrel by 10:59 GMT.

The more actively traded August Brent contract declined by $1.63, or 1.76%, to $91.07 per barrel.

US West Texas Intermediate crude fell by $1.55, or 1.74%, to $87.35 per barrel.

Brent is heading for a weekly loss of around 11%, its largest since the week ending April 6, while US crude is set for a decline of nearly 10%, its biggest weekly loss since the week ending April 13.

Giovanni Staunovo, an analyst at UBS, said the market remains focused on the possibility of an agreement between the United States and Iran despite ongoing restrictions on oil flows through the Strait of Hormuz and declining oil inventories.

He added that lower prices could encourage some investors to close long positions.

Sources told Reuters on Thursday that the United States and Iran had reached an agreement to extend the ceasefire and lift restrictions on navigation through the Strait of Hormuz. However, US President Donald Trump has not yet granted final approval, while Iranian state media reported that the agreement has not been formally adopted.

Oil prices have experienced sharp volatility in recent sessions, moving as much as $6 higher and lower amid conflicting signals about the prospects of ending the war with Iran and reopening the Strait of Hormuz, through which roughly one-fifth of global oil and liquefied natural gas supplies previously passed.

Despite that, shipping traffic through the strait remains well below pre-conflict levels.

Analysts at ING said reopening the waterway could provide immediate relief to the oil market, but a full recovery in supply remains uncertain.

In Japan, which relies heavily on Middle Eastern oil imports, data showed that crude oil imports fell 66% last month compared with April of last year.

Meanwhile, Commerzbank raised its Brent crude forecast to $90 per barrel by the end of September and $85 per barrel by year-end, based on a scenario that assumes the Strait of Hormuz remains closed to normal shipping activity for another two months.

At the same time, data from the US Energy Information Administration showed declines in crude oil, gasoline, and distillate inventories last week as refinery and consumer demand increased, while US oil exports fell by 1.16 million barrels per day to 4.4 million barrels per day.