Oil is on track to close the week above $100 a barrel for the first time since mid-May, even as prices pulled back Friday after Thursday's sharp rally tied to Middle East tanker attacks. U.S. diesel crossed $6 a gallon for the first time ever, and traffic through the Strait of Hormuz has thinned sharply as the Iran war disrupts shipping.
Oil prices were on track to end the week above $100 a barrel for the first time since mid-May on Friday, even as both benchmarks pulled back after Thursday's sharp rally. Brent crude fell $1.65, or 1.53%, to $105.98 a barrel by 0758 GMT, while West Texas Intermediate dropped $1.36, or 1.33%, to $101.12 a barrel. Both contracts had risen more than 6% on Thursday and stood more than 10% higher for the week, after attacks on Middle East shipping routes stoked fears of a prolonged supply disruption.
Prices pared their gains after the Financial Times reported that Middle Eastern foreign ministers are negotiating a temporary deal with Iran on shipping through the Strait of Hormuz. UBS energy analyst Giovanni Staunovo said the talk was moderately weighing on prices, though he still sees near-term risk skewed to the upside amid elevated volatility.
Strait of Hormuz traffic thins as attacks escalate
Iran said it attacked 10 ships near the Strait of Hormuz on Wednesday, after the U.S. hit five Iranian oil tankers, and Iran's Islamic Revolutionary Guard Corps said it would escalate its response to further attacks. Vessel transits through the strait fell to seven on Thursday from 11 the previous day, well below the 10-day average of 15, preliminary ship-tracking data showed. The strait handled about one-fifth of global daily oil and liquefied natural gas supplies before the Iran war began in late February. Iran-aligned Houthi forces also seized control of Yemen's port of Mocha on Thursday, posing a further threat to Red Sea traffic.
Diesel prices hit a record high
Supply disruptions from the war, combined with Ukrainian strikes on Russian refineries, pushed the U.S. national average diesel price past $6 a gallon for the first time on Thursday, according to GasBuddy. The national average reached $6.06 a gallon by early Friday per CNN's tracker. According to AAA, that is a 60% jump from the roughly $3.76 average recorded before hostilities began in late February. The diesel crack spread, the refining margin between crude and finished diesel, hit a record $112.17 a barrel on Thursday, according to LSEG data.
GasBuddy's head of petroleum analysis, Patrick De Haan, told Reuters: "Every truck, every delivery, every package, every grocery run just got more expensive."
The squeeze comes as U.S. diesel inventories sit 13% below their five-year average, at 106.3 million barrels, the Energy Information Administration reported. Vitol estimated elevated prices could cut global oil demand by about 1.5 million barrels a day in 2026 versus 2025. Fuel-lifted August CPI data is expected to reinforce the case for another rate increase when the Federal Reserve announces its interest rate decision the week of September 15-17. Higher pump prices are also adding to broader inflation pressure on household budgets.
Sources: Reuters via Investing.com, Investing.com
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