West Texas Intermediate crude oil prices have posted a significant weekly decline, sliding 4.5% as market participants increasingly anticipate a reopening of the Strait of Hormuz, which would ease the geopolitical tensions that have been pricing a risk premium into oil futures. The October contract settled at $83.17 per barrel on Friday, down 0.43% for the session, according to Reuters market data.
The weekly drop of 4.47% reflects a shift in sentiment, with traders now betting on a gradual increase in supply rather than a full-blown peace breakthrough. Gulf exports have been running between 15 million and 16 million barrels per day, still 7 million to 8 million barrels below pre-conflict levels, according to Goldman Sachs estimates cited by Reuters. This suggests that while the immediate crisis may be easing, the market remains far from normal conditions.
Physical traffic through the strait remains unpredictable. Only seven commodity ships transited Hormuz on Thursday, down from 17 the previous day, and well below the 10-day average of 15. Prior to the conflict, the waterway handled approximately 20% of global oil shipments, underscoring its strategic importance.
Diplomatic efforts have played a key role in reshaping the pricing outlook. Following Qatari mediation, Iran has committed to creating a favorable environment for the return of routine shipping. U.S. military officials have confirmed that no Iranian naval mines are currently present in international shipping lanes, a development that has further reduced the perceived threat to maritime traffic.
The market's reaction has been mixed across different asset classes. The United States Oil Fund (NYSEARCA: USO), a popular exchange-traded product tracking crude oil, fell 0.44% to $129.44 as of 12:36 EDT. In contrast, the Energy Select Sector SPDR Fund (NYSEARCA: XLE) gained 0.38% to $62.53 by 12:50 EDT, indicating that equity investors are not interpreting Friday's oil price movement as a negative earnings signal for energy companies. XLE remained within 3.4% of its 52-week high, with top holdings including Exxon Mobil, Chevron, and ConocoPhillips.
U.S. inventory data provided additional support for the market. Commercial crude stocks increased by just 95,000 barrels last week, falling short of forecasts, and now stand at 428.9 million barrels. Inventories at Cushing, the key delivery point for WTI, rose by 1.176 million barrels. Refinery utilization hit 97.4%, indicating robust demand for crude processing. Gasoline stockpiles declined by 2.536 million barrels to 206.8 million, while distillate inventories fell by 2.228 million to 103.4 million. These draws suggest strong downstream consumption even as crude supplies have risen for a fourth consecutive week, according to the U.S. Energy Information Administration.
The forward curve offers further insight into market expectations. At 12:21 EDT, November WTI was trading at $81.65 per barrel, with December at $79.80. The discount to the October contract indicates that the market continues to prioritize near-term barrels, reflecting the ongoing uncertainty surrounding supply.
A continued drop in oil prices would lower fuel expenses for consumers and transportation companies, providing a potential boost to the broader economy. For producers, maintaining prices above project breakeven levels is crucial for profitability. The resilience of energy stocks on Friday suggests that investors anticipate balance-sheet strength and ongoing capital discipline among major oil companies.
However, risks remain. The shipping deal has not been finalized, vessel movement is still well below typical volumes, and sanctions are becoming stricter. If attacks resume, negotiations break down, or another transit disruption occurs, the geopolitical risk premium could return swiftly, reversing the recent downward trend.
