Oil settles lower on clues about Fed policy, rumors of Hormuz deal

Oil prices fell on Friday as traders considered hints about the Federal Reserve's inflation-fighting strategy and rumors of a potential agreement to reopen the Strait of Hormuz. Brent crude futures dropped to $89.31 per barrel, while West Texas Intermediate crude ended at $83.40 per barrel. Over the past week, Brent crude declined by more than 5%, and WTI decreased by over 4%.

Federal Reserve Chairman Kevin Warsh hinted at a possible rate hike later in the year to combat inflation, which further pressured oil prices. Analyst Phil Flynn stated that strong market conditions for Ukraine strikes on Russian refineries are present, though there are many rumors about a possible Hormuz deal. The war with Iran has been ongoing for six months.

Traders are monitoring the return of oil flows through the Strait of Hormuz, which transports about 20% of global oil production before the conflict began. Janiv Shah, a Rystad analyst, noted that additional flows and Iran-Oman shipping have surprised the market. The U.S. announced the strictest sanctions on Iran, while Tehran claimed the sanctions were inhumane and ineffective. Mediators are working to reopen the Strait, with Tehran agreeing to a list of conditions.

Oil flows through the strait have been inconsistent, with seven commodity vessels passing through on Thursday, compared to 17 the day before. The Bab el-Mandeb chokepoint saw 17 vessels transit, six entering and 11 exiting. Goldman Sachs estimated that Gulf exports were 15 million to 16 million barrels per day, 7 million to 8 million bpd below pre-war levels but 5 million to 6 million above the March low. The outcome of OPEC, China's demand, and global refinery issues are all tied to this volatile situation.