Prices of Oil Fall as Markets Reprice Supply Risk -Weekly Update
Oil prices swung sharply during the week ending July 31 as markets weighed efforts between the US and Iran against escalating military tensions and evolving security risks along critical Middle East shipping routes.
Brent crude futures for October traded at $88.58 per barrel, down 3.4% from last Friday’s close of $91.68. US benchmark West Texas Intermediate (WTI) futures for September traded at $85.39 per barrel, up 0.3% from the previous week’s close of $85.15.
Oil prices came under heavy selling pressure at the start of the week after US President Donald Trump paused military strikes on Iran, raising expectations that Washington and Tehran could return to negotiations.
The move eased concerns over an immediate disruption to Middle East oil supplies and prompted investors to unwind much of the geopolitical risk premium built into prices during the previous week’s rally.
The decline extended into Tuesday after Trump said there was a “good chance” of reaching an agreement with Iran, while Tehran announced it had halted retaliatory attacks following the suspension of US strikes.
However, concerns over security in the Strait of Hormuz and the Bab el-Mandeb Strait continued to limit losses, with markets closely monitoring talks between Iran and Oman aimed at restoring safe maritime navigation through the strategic waterway.
Oil prices rebounded on Wednesday and Thursday as renewed military activity revived concerns over potential supply disruptions.
Joint US-Saudi strikes against Iran-backed groups in Iraq, Iran’s attempted ballistic missile attack on US forces in the region, fresh US sanctions targeting Iran’s oil trade and Tehran’s warning that the Strait of Hormuz would remain closed under current conditions all supported prices.
A larger-than expected decline in US crude inventories also reinforced expectations of resilient fuel demand, providing additional support to the market.
The rally lost momentum on Friday after Saudi Arabia and 13 partner countries announced the formation of a multinational maritime defense coalition to safeguard shipping through the Bab el-Mandeb Strait, the Red Sea and the Gulf of Aden.
The announcement followed Yemen’s Iran-backed Houthi group’s declaration of a maritime blockade against Saudi Arabia on July 20 and subsequent claims of attacks on Saudi-linked vessels, developments that had heightened concerns over the security of one of the world’s most important energy shipping corridors.
The Houthis also denied reports that they planned to impose transit fees on commercial vessels and reiterated that the Bab el-Mandeb Strait remains open to international shipping.
Although no major breakthrough emerged in US-Iran negotiations, easing concerns over broader disruptions to regional oil flows reduced the geopolitical risk premium and weighed on crude prices at the end of the week.
