Oil prices fell on Friday but remained on track for weekly gains of more than 8% as U.S. diesel prices surged past $6 a gallon, the highest on record, amid escalating attacks on Middle East shipping routes and supply disruptions.
Brent crude futures dropped 3.21% to $104.18 a barrel at 1132 GMT, while U.S. West Texas Intermediate crude fell 2.89% to $99.52 a barrel, according to Channel NewsAsia. Both benchmarks had earlier touched their highest levels since mid-May before reversing gains following reports of potential diplomatic efforts to manage shipping through the Strait of Hormuz.
Immediate Market Movements
The declines followed sharp increases earlier in the week, with Brent and WTI rising more than 6% on Thursday after a surge in attacks on vessels in the Red Sea and Bab el-Mandeb Strait. The escalation prompted concerns over prolonged supply disruptions, particularly for Saudi Arabia, a key oil exporter.
U.S. diesel prices averaged $6.05 per gallon on Friday, up from $5.85 the previous week and nearly double the $3.70 average a year ago, according to AAA. The spike reflects broader oil price increases, with both Brent and WTI surpassing $100 a barrel for the first time since mid-May.
Regional Supply Risks
Saudi Arabia’s crude output fell to 6 million barrels per day in August, the lowest level in over three decades, the International Energy Agency reported Friday. The decline was attributed to attacks on Saudi energy facilities, including satellite imagery showing smoke near the East-West Pipeline, a critical route for diverting exports away from the Strait of Hormuz.
Yemen’s Iran-aligned Houthis advanced to the island of Perim in the Bab el-Mandeb Strait, four Yemeni government sources told Reuters, tightening their control over a vital shipping lane. Iran separately claimed responsibility for attacks on 10 ships near the Strait of Hormuz on Wednesday, following U.S. strikes on five Iranian oil tankers.
Analyst Perspectives
UBS energy analyst Giovanni Staunovo noted that while near-term risks to oil prices remain skewed to the upside, ongoing high price volatility is expected. Deutsche Bank’s Jim Reid similarly highlighted that geopolitical fears are driving market movements, with concerns over Red Sea shipping safety and potential knock-on effects for Saudi oil exports.
Tamas Varga of PVM Oil Associates questioned whether the current supply deficit is structural or temporary, leaving open the possibility of further price spikes. Analysts also pointed to the potential for oil to revisit April’s peak of $126 per barrel if disruptions persist.
Political and Economic Implications
President Donald Trump has stated that oil prices are unlikely to decline until after the U.S. midterm elections in November, despite earlier assurances that the conflict would end sooner. The surge in diesel prices is already straining transportation networks, with businesses passing higher costs to consumers through added fees on deliveries and online orders.
Higher diesel costs disproportionately affect perishable goods, such as meat and produce, which require frequent restocking. The White House’s reported discussions about the conflict dragging beyond Trump’s current term have added to market uncertainty, with Wall Street Journal reporting that top advisors broached the possibility with the president.