Oil falls but on track for 8% weekly gain on supply concerns; US diesel hits record high

Oil prices dipped on Friday but are still on track for an 8% weekly increase, according to wire material. The price of Brent crude futures dropped $3.45, or 3.21%, to $104.18 a barrel, while U.S. West Texas Intermediate crude fell $2.96, or 2.89%, to $99.52 a barrel. Both benchmarks reached their highest levels since mid-May earlier in the session.

However, the price decline was short-lived as concerns about prolonged supply disruptions due to attacks along Middle East shipping routes resurfaced. The Financial Times reported that Middle East foreign ministers are attempting to negotiate a temporary deal with Iran to manage shipping through the Strait of Hormuz. UBS energy analyst Giovanni Staunovo noted that near-term risks are weighing moderately on oil prices, but high price volatility is expected to persist.

In a significant development, satellite imagery revealed smoke near Saudi Arabia's East-West Pipeline, which has become crucial for the kingdom to divert its crude exports away from Hormuz. Saudi Arabia's crude supply fell to 6 million barrels per day in August, the lowest level in over three decades, due to attacks on Saudi energy facilities.

Yemen's Houthi rebels also reached the island of Perim in the Bab el-Mandeb Strait, potentially tightening their grip on a vital shipping route. Iran has reportedly attacked 10 ships near the Strait of Hormuz, and the Islamic Revolutionary Guard Corps vowed to escalate its response to further attacks. Global oil supplies have been severely disrupted due to the Iran war, along with Russian attacks on refineries, causing U.S. diesel prices to surpass $6 a gallon for the first time.

Analysts predict that as long as Gulf shipping constraints and Russian refining outages remain, diesel and other refined products will likely experience a higher upside than the broader crude market.