Oil dips as traders weigh U.S.-Iran tensions against supply recovery

Oil prices slipped on Friday as traders assessed the potential for heightened conflict between the U.S. and Iran against indications of a revival in supply from the Middle East. As of 05:02 ET (09:02 GMT), Brent crude futures for December delivery dropped 2.7% to $99.69 per barrel, while West Texas Intermediate (WTI) crude futures fell 3.5% to $89.64 per barrel.

These declines followed a surge of more than $4 and $2 respectively on Thursday after reports surfaced that the U.S. was considering deploying additional military assets to the region, including a carrier strike group and more troops. President Donald Trump indicated to "Time" magazine that U.S. military action against Iran could resume after the midterm elections in November, stating he does not believe "you could ever have peace" with Tehran.

Analysts at BMO Capital Markets noted the heightened tensions, which have kept a focus on the Strait of Hormuz, a critical shipping lane for global energy, which has been largely closed since the start of a joint U.S.-Israeli strike on Iran in late February. Although Gulf exports have shown signs of recovery, the markets remain vigilant for any disruption to tanker traffic or regional infrastructure.

Saudi Arabia has reactivated its east-west pipeline and resumed tanker loadings from the Red Sea port of Yanbu. However, Chinese refiners have halted fuel exports to Hong Kong and Macau, which may tighten global markets for refined fuels such as diesel, jet fuel, and gasoline. The U.S. has also urged European nations to consider releasing emergency diesel reserves to alleviate pressure on fuel markets.

Traders are closely watching refinery output and inventory levels as higher energy prices could complicate central bank efforts, including those of the Federal Reserve, to balance economic growth with inflation risks.