Oil prices declined by more than one percent on Friday as markets weighed the potential for a US-Iran truce against new security threats in the Middle East, particularly following a Houthi missile attack on Saudi Arabia that reignited concerns over supply disruptions. Negotiators from the US and Iran are currently engaged in discussions in New York regarding a gradual exit strategy from the ongoing conflict. This plan reportedly includes the reopening of the Strait of Hormuz by Tehran and the lifting of the economic blockade imposed by Washington on Iran, as indicated by various reports. Brent crude decreased by 96 cents, representing a 0.9% decline, settling at $105 per barrel. Meanwhile, West Texas Intermediate saw a reduction of $1.5, equivalent to a 1.60% drop, bringing its price to $93 per barrel. The subdued commencement of Friday’s session followed a week characterised by significant fluctuations in the crude markets. Oil prices experienced an ascent to a one-week peak on Thursday, with both Brent and WTI increasing by as much as 5%. Brent concluded the trading session with an increase of 3.4%, whereas WTI experienced a rise of 2.7%.

Since the onset of the conflict in late February, approximately one-fifth of global oil and gas shipments have been reduced. That disruption resulted in a 50% increase in oil prices in March alone and has also led liquefied natural gas buyers to pursue new and more stable sources of supply. Iranian President Masoud Pezeshkian stated on Thursday that the determination of when the war concludes is in the hands of the United States. “It’s America that must choose whether it wants to end this or not,” Pezeshkian stated in an interview. Concurrently, security risks persist. Saudi Arabia successfully intercepted six ballistic missiles that were launched by Yemen’s Iran-backed Houthis, thereby averting potential attacks aimed at the southern province of Taif and the Yanbu region along the Red Sea, as reported by the Saudi-led coalition in Yemen. The prevailing uncertainty has rendered the oil market increasingly challenging for major banks to evaluate. JPMorgan indicated that it has lost clarity regarding the trajectory of oil prices and, for the first time since the onset of the Iran war in February, lacks a definitive baseline scenario for the market.

The bank indicated that the rising tensions were contributing to apprehensions regarding an already deteriorating supply shock. “We simply don’t know how to model the endgame,” JPMorgan analysts stated, highlighting the uncertainty regarding the potential evolution of the conflict. At the onset of the conflict, the bank operated under the assumption that there existed certain economic thresholds that the US administration would refrain from exceeding. Six months into the war, JPMorgan noted, many of those thresholds have been crossed, while there remains no clear exit strategy. The prospect of additional supply disruptions has also heightened the likelihood of increased oil prices. Daan Struyven indicated that recent attacks demonstrated the potential for disruptions to shipping to proliferate and intensify.

Goldman Sachs has delineated a situation where oil prices might escalate to $120 per barrel should assaults on vessels in the Middle East become more pronounced. If exports return to normal, the bank anticipates that oil prices will trend back toward $80 a barrel. Struyven indicated to Bloomberg that shipping risks have emerged as a significant factor influencing oil prices. Goldman Sachs anticipates “meaningful upside to crude oil prices” and also projects an increase in natural gas and refined product prices. Struyven noted that supply shocks in petrol and fuels are more significant than those observed in the crude market.