Oil prices fell nearly 3% on Friday to their lowest level in almost two months after U.S. President Donald Trump canceled planned strikes on Iran, easing concerns of a wider escalation following tit-for-tat attacks earlier in the week.
Brent crude futures fell $2.27, or 2.5%, to $88.11 a barrel at 1322 GMT, while U.S. West Texas Intermediate (WTI) dropped $2.47, or 2.8%, to $85.24. Both benchmarks hit their lowest levels since April 17.
The retreat came as diplomatic signals suggested a possible de-escalation. A Western source told Reuters that a memorandum between the United States and Iran aimed at halting the conflict in the Gulf could be signed as soon as Sunday, with Geneva emerging as the most likely venue.
However, Iran’s Fars news agency, citing a source close to the negotiations, denied that any agreement would be signed in Geneva on Sunday, underscoring persistent uncertainty surrounding the diplomatic track.
Trump canceled the threatened strikes on Thursday. Iran’s Mehr news agency reported that final negotiations on the proposed memorandum would focus on nuclear and economic issues but would exclude Tehran’s ballistic missile program, a long-standing point of contention in talks with Western powers.
Iran’s state-run IRNA news agency said nuclear discussions would take place within 60 days after any memorandum is signed, suggesting a phased approach to negotiations if progress is achieved.
“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.
However, he cautioned that global oil inventories remain tight and could decline further even in the event of a deal, as restoring stable supply flows would take time.
On Thursday, Iran announced a full closure of the Strait of Hormuz, a critical chokepoint for global energy shipments, warning it would target vessels attempting to pass. The strait normally carries roughly one-fifth of global oil and liquefied natural gas flows, making it one of the world’s most strategically sensitive waterways.
The U.S. military said on social media that commercial shipping continued to move through the waterway despite the announcement.
Analysts at ING said the market could reach a turning point in late July if oil flows do not resume before then.
“That is when inventory levels and seasonally stronger demand push prices significantly higher toward $120 to $130 per barrel,” they said in a note.
Goldman Sachs cut its 2027 average Brent forecast to $80 a barrel, citing higher supply and weaker demand, but said prices could still exceed 2025 averages due to stockpiling in OECD commercial inventories and a persistent security premium linked to supply disruption risks.
The Organization of the Petroleum Exporting Countries also revised down its 2026 global oil demand growth forecast to 970,000 barrels per day from 1.17 million bpd, marking its second consecutive downward revision.
However, the group said demand would rebound later, raising its 2027 growth outlook by 190,000 bpd to 1.73 million bpd, signaling expectations of longer-term consumption recovery despite near-term uncertainty.
