Oil Prices Swing as Iran-US Tensions Keep Weekend Risks High

Oil prices are heading into the weekend with geopolitical risk firmly back in the driving seat. After falling on Thursday as traders focused on weaker demand forecasts and a substantial build in U.S. crude inventories, Brent and WTI rebounded on Friday as Washington’s threat to maintain an indefinite naval blockade of Iran revived concerns about further disruptions to Middle Eastern supply.

Weekly Brent Chart - Source: ActivTrades

The latest price action highlights the tension currently facing the oil market. On one side, there are clear signs that physical supply remains severely constrained. On the other, demand expectations and inventories are providing an important counterweight, limiting how far prices can rise.

The Strait of Hormuz remains the key variable. U.S. Energy Secretary Chris Wright said oil exports through the waterway had recovered to almost 9 million barrels per day, with total Gulf exports reaching around 15 million bpd when pipeline flows are included. However, independent estimates remain considerably lower, creating uncertainty over how much crude is actually reaching international markets.

That uncertainty is particularly important heading into the weekend. Shipping traffic through Hormuz has fallen below its August average amid competing U.S. and Iranian claims over control of the waterway, while attacks on commercial vessels have added to concerns over the security of regional energy flows. Hormuz handled roughly one-fifth of global oil and LNG shipments before the conflict, making any further deterioration potentially significant for global prices.

Yet the bullish geopolitical narrative is being challenged by softer market fundamentals. The International Energy Agency now expects global oil demand to contract by 1.6 million barrels per day this year, while OPEC has also reduced its demand-growth forecast to 580,000 bpd. At the same time, U.S. crude inventories posted their largest weekly increase in more than three and a half years.

For traders, this creates a particularly volatile setup. Oil prices are no longer responding solely to the amount of crude being physically lost from the market; they are also reacting to expectations over how long the disruption might last and whether the situation could deteriorate further.

The weekend therefore carries a high event risk. Any sign of renewed U.S.-Iran negotiations could quickly reduce the geopolitical premium and push crude lower, particularly given the weaker demand outlook and rising U.S. inventories. Conversely, further attacks on shipping, tighter sanctions or an escalation around Hormuz could send prices sharply higher as traders price in a more prolonged supply shock.

For now, the oil market remains caught between tight physical supply and weakening demand expectations. That tug-of-war is likely to keep Brent and WTI highly sensitive to every headline, with geopolitical developments potentially outweighing traditional supply-and-demand signals as the new trading week begins.

Sources: Reuters, The Wall Street Journal

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