Oil Prices Drop 4% on US-Iran Draft Deal
Brent crude futures, the global oil benchmark, were down 4.3% at $86.47 a barrel, while U.S. West Texas Intermediate (WTI) futures fell 4.5% to $83.78 a barrel. Both benchmarks are on track for weekly losses exceeding 7%. The Brent contract slipped below $90 a barrel on Thursday after U.S. President Donald Trump suggested that an agreement to end the war in Iran may be close.
The Mehr news agency reported that a Memorandum of Understanding (MoU) between Iran and the United States would unblock the Strait of Hormuz – a vital waterway for about one‑fifth of the world’s oil – lift U.S. sanctions on Iranian oil, and release frozen Iranian funds. Final negotiations are said to focus on nuclear and economic issues, while discussions on Iran’s missile program will be excluded. Relevant authorities still need to finalize the proposed deal. Trump indicated that Washington and Tehran could sign a peace deal as soon as the weekend, which would reopen the Strait to shipping.
Despite the optimism, traders remained cautious, noting that similar statements from Trump in the past have not halted the more than three‑month‑old conflict. Analysts at ING warned that Brent could still easily move above $100 if the conflict remains unresolved, as longer‑lasting tensions would tighten supply and push prices higher. Any setback in negotiations could quickly revive supply concerns.
Oil prices remain well above pre‑war levels, and the recent slide could help ease concerns about an energy‑fueled inflation burst that might prompt global central banks to raise interest rates. The European Central Bank cited an Iran‑linked oil spike as a central factor behind its decision to raise rates by a quarter percentage point on Thursday. In the United States, consumer and producer price data this week showed acceleration, largely driven by higher energy prices. The Federal Reserve is expected to keep borrowing costs unchanged after its policy meeting next week, but markets, according to CME’s FedWatch Tool, are betting on a rate hike before year‑end.
Pressure on oil was also compounded by a weaker demand outlook from OPEC. In its monthly report, the producer group cut its forecast for 2026 global oil demand growth for a second consecutive month, citing the impact of shipping constraints through the Strait of Hormuz. OPEC now expects global oil demand to grow by 970,000 barrels per day in 2026, down from a previous estimate of 1.17 million bpd, although it raised its 2027 forecast, anticipating a rebound in consumption as geopolitical tensions subside.
(Ayushman Ojha contributed reporting.)