Oil prices climbed on Friday, reversing a steep weekly sell-off, after a planned round of peace negotiations between the United States and Iran was abruptly cancelled, casting serious doubt over the durability of their interim agreement. The breakdown in diplomacy, coupled with Israel’s intensified military campaign against Hezbollah in Lebanon, reinjected a significant geopolitical risk premium into the market.
Market Reaction and Price Action
Brent crude futures advanced 51 cents, or 0.64%, to trade at $80.36 barrel by 0645 GMT. US West Texas Intermediate (WTI) crude for July delivery, which expires on Monday, jumped $1.28, or 1.7%, to $77.88 a barrel. The more actively traded WTI contract for August was up 59 cents at $76.44. Despite the day’s gains, both benchmarks remained on track for a weekly decline of roughly 8%.
Diplomatic Setback Clouds Supply Outlook
Switzerland confirmed that US talks with Iranian negotiators aimed at solidifying a pact to end the Middle East conflict would not proceed on Friday. Vice President JD Vance’s decision to drop his travel plans added to the uncertainty. This development comes just a day after the market reacted with relief to the initial interim deal, which had sent prices tumbling to three-month lows.
“This is not the geopolitical backdrop that would give the market any confidence in resuming Hormuz transit,” said Vandana Hari, founder of oil market analysis provider Vanda Insights. “Prices may have bottomed out and we may see a renewed climb accompanied by plenty of volatility as cracks have already emerged in the memorandum of understanding.”
Strait of Hormuz and Stranded Barrels
On Thursday, the sight of several tankers, including three Saudi-flagged vessels carrying 6 million barrels of crude, safely navigating the Strait of Hormuz had buoyed hopes of normalizing oil flows. The interim deal was expected to release over 85 million barrels of stranded oil from the Middle East Gulf into global markets and included the lifting of US sanctions on Iranian crude, which would further swell supply.
However, analysts now caution that traders will require concrete evidence of sustained safe passage before factoring out the risk. “Traders are still waiting for hard evidence that tanker traffic through the of Hormuz is actually normalising before committing to the next leg lower,” noted Tim Waterer, chief market analyst at KCM.
Producers Prepare, But Conflict Persists
Despite the diplomatic uncertainty, regional producers are positioning for a potential resumption of full-scale exports. Kuwait Petroleum Corp announced it had lifted all force majeure notices with immediate effect, while Iraq’s Oil Minister Basim Mohammed stated that oilfields are ready to gradually restore production to previous rates.
Yet, the broader security picture remains fraught. Israel’s ongoing war against Hezbollah in Lebanon raises serious questions about whether the US-Iran peace framework can hold. The collapse of the Swiss talks and escalating regional hostilities suggest that the path to a stable truce and reliable energy transit remains deeply uncertain.
