Oil prices dip amid Middle East de-escalation signs, but supply outlook weighs

Oil prices saw a modest decline on Friday, influenced by indications of easing tensions in the Middle East, though the broader market outlook points to rising global supply outpacing demand. The Brent crude for September delivery fell 0.38% to $76.01 a barrel, while West Texas Intermediate for August delivery dropped 0.93% to $71.41, according to AFP. Both contracts remain above their levels from the previous week, though significantly below the peaks reached earlier in the conflict that began in late February. Barbara Lambrecht, an analyst at Commerzbank, noted that the risk premium embedded in crude prices is still relatively low compared to March-May, suggesting market participants see recent events as a temporary disturbance. President Donald Trump stated his willingness to engage with Iran but declared the ceasefire, in effect since April, had "ended" following renewed hostilities this week. However, signs of de-escalation emerged, with a Qatari mediator expressing confidence in a return to dialogue after Tuesday's incidents, as reported by Iran's Tasnim agency. Despite reduced maritime traffic in the Strait of Hormuz, oil investors have responded with calm, according to Tamas Varga, an analyst at PVM Energy. A report from Lloyd's List Intelligence indicated that vessels transiting the area are using a corridor near the Iranian coast, as permitted by Tehran, rather than the UN-backed Omani route. Crude prices had surged earlier in the week before beginning to fall. Varga attributed this shift partly to traders' concerns about weak demand. The International Energy Agency (IEA) projects a decrease in global oil consumption by one million barrels in 2026. The IEA also reported a significant increase in crude and oil product transit through the Strait of Hormuz in June, despite the U.S.-Iran ceasefire agreement. The agency estimates that global supply could exceed demand by year-end if a lasting peace agreement is reached. However, the IEA's monthly oil market report highlights that the recent escalation of hostilities between the U.S. and Iran casts a shadow over these prospects, potentially undermining this forecast, as evidenced by market reactions.

“

the risk premium incorporated into crude prices continues to be relatively low compared to the period between March and May.