Oil settles lower on clues about Fed policy, rumours of Hormuz deal
Both oil benchmarks declined for the day
Oil prices took a downward turn on Friday, August 28, as traders assessed hints about the US Federal Reserve Bank's strategy to combat inflation and rumors of a potential accord regarding shipping through the Strait of Hormuz. Brent crude futures closed at US$89.31 a barrel, a decrease of 39 cents or 0.43 percent, while West Texas Intermediate (WTI) crude futures finished at US$83.40 a barrel, slipping by 13 cents or 0.16 percent.
Over the week, Brent crude declined by more than 5 percent and WTI by more than 4 percent. New Fed Chairman Kevin Warsh's remarks suggesting a possible rate hike later this year to curb inflation contributed to the further downturn in oil prices, according to Phil Flynn, senior analyst at the Price Futures Group. Flynn noted that global product markets appeared robust following additional strikes against Russian refineries in Ukraine, while there were ongoing murmurs about a possible agreement to reopen the Strait of Hormuz over the weekend.
The US-Israeli conflict with Iran had been ongoing for six months as of the report date. Traders closely monitored the flow of oil through the strait, which accounted for 20 percent of global oil production prior to the war. The market reacted positively to the increasing flow, driven by Iran-Oman shipping and claims of US mine clearance.
Rystad analyst Janiv Shah explained that the weekly decline in oil prices could be attributed to the available volume exiting the Strait and the pace of increasing flows, enabling Asian refiners to draw on and consume more oil. President Donald Trump's administration was actively working on a deal to secure long-term access to a portion of Venezuela's crude reserves, which could potentially lower the cost of oil imports.
Venezuela was also contemplating leaving Opec. Geopolitical tensions escalated after Moscow threatened to target British military assets inside and outside Ukraine in response to Kyiv's strikes utilizing British-supplied long-range cruise missiles.
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