Oil prices slide about 2% as US, Iran explore path out of war

Oil prices slid approximately 2% on Friday amid optimism for a US-Iran truce and discussions of a potential US ban on diesel exports, despite concerns over rising attacks against Saudi Arabia by Houthi fighters, which could disrupt Middle Eastern supply. Brent futures dropped $2.28, or 2.1%, to $104.32 per barrel, while West Texas Intermediate crude declined $2.20, or 2.3%, to $92.41. This represents a weekly increase of less than 1% for Brent and an 8% decrease for WTI.

US and Iranian negotiators in New York discussed a phased path out of war that would include Iran reopening the Strait of Hormuz and the lifting of economic sanctions by Washington, according to sources familiar with the talks. However, Iran insisted it would not budge on its nuclear program, even if the US accepted its proposal to reopen the Strait of Hormuz, which requires lifting the US naval blockade on Iranian ports. Senior Iranian officials informed Reuters of these developments.

Market participants remain cautious as increasing speculation about a possible diesel export ban adds to selling pressure on oil futures, despite diplomatic progress toward opening the Strait of Hormuz. The premium of Brent crude over West Texas Intermediate (WTI) reached its highest level since May for the third consecutive day, signaling market expectations of reduced crude oil processing by US refiners if their diesel output cannot be exported.

Meanwhile, Saudi Arabia, Turkey, and Pakistan were set to meet to discuss assistance for Saudi Arabia amid ongoing attacks by Iran-aligned Houthis. These assaults have disrupted oil flows from Saudi Arabia, the world's largest energy exporter. Crude oil exports through the Strait of Hormuz totaled 33.7 million barrels during the week ending September 20, nearly matching levels from the previous week.

Prior to the onset of the Iran conflict, around 20% of global oil supplies traversed the strait. Since the start of the war, US President Donald Trump expressed during talks with Chinese President Xi Jinping that Chinese support for Iran is unacceptable. Any trade tension reductions between the US and China could stimulate economic growth and energy demand.

Additionally, Ukrainian President Volodymyr Zelenskiy proposed hosting a trilateral meeting involving the United Arab Emirates, Ukraine, and Russia to address the ongoing 4.5-year-long conflict between Ukraine and Russia. Russian President Vladimir Putin affirmed that all settlement proposals for the four-and-a-half-year war with Ukraine remained open, but Moscow needed to evaluate what was in its best interest.

A drone strike damaged Russia's Novoshakhtinsk oil refinery, temporarily suspending its operations. Heavy drone strikes on Russian refineries followed UN headquarters discussions on a potential energy-related ceasefire between Kyiv and Moscow.