(Investing) – HOUSTON – Oil futures fell more than 2% on Friday and were on track for their steepest weekly decline since early April after reports that the U.S. and Iran had reached agreement on a potential ceasefire extension.
Brent crude futures for July, which expire later on Friday, were down $1.74, or 1.86%, at $91.97 a barrel by 10:58 a.m. CDT (1558 GMT). The more active August contract was down $1.64, or 1.77%, at $91.06. WTI U.S. oil futures were down $1.35, or 1.52%, at $87.55.
It was not a smooth downward slope for futures throughout Friday, however, with comments from U.S. President Donald Trump about an agreement and possible military action against Iran.
“It’s Trump talking out of both sides of his mouth,” said Phil Flynn, senior analyst with the Price Futures Group. “He’s favoring a deal then talking about military action.”
Iran’s Fars news agency reported that the Iranian government was in the final stages of ratifying an agreement with the United States, but had not made the final decision to approve the deal.
Fars also said the agreement would not require Iran to open the Strait of Hormuz without restrictions but the Islamic Republic would reopen the waterway “according to its own pre-determined arrangements.”
Iran has said after the end of the conflict with the U.S. and Israel it would regulate traffic through the strait, charging fees to transit.
Trump has said the proposed agreement would require Iran to open the waterway without restriction.
The Brent benchmark has plunged by about 11% this week for its steepest weekly decline in seven. WTI, meanwhile, has dropped by more than 9% for its biggest weekly loss in six. Both benchmarks hit their lowest price since mid-April.
“While oil flows through the Strait of Hormuz remain restricted and oil inventories keep falling, the market focus remains on the possibility of a deal between the U.S. and Iran,” said UBS analyst Giovanni Staunovo.
“The price drop could be forcing some market players to close their long positions.”
The U.S. and Iran reached a tentative agreement on Thursday to extend a ceasefire and lift restrictions on shipping through the Strait of Hormuz, sources told Reuters.
Oil prices have been volatile in recent sessions, swinging by as much as $6 for both benchmarks on conflicting signals over a possible end to the Iran war and potential reopening of the Strait of Hormuz, which was previously a conduit for a fifth of the world’s oil and liquefied natural gas supplies.
Traffic through the maritime chokepoint remains a small fraction of levels before the conflict. Analysts at ING said a reopening of the waterway would offer some immediate relief to the oil market, but a recovery is still uncertain.
Japan, which relies heavily on oil from the Middle East, last month registered a 66% drop in crude oil imports compared with April last year.
