Oil prices slide on reports of Pakistan-backed US-Iran talks

Oil prices slide on reports of Pakistan-backed US-Iran talks

Crude oil benchmarks declined on Friday following reports that Pakistan is working with China to restart diplomatic talks between the United States and Iran. The news provided a catalyst for investors to book profits after a volatile week of gains driven by escalating tensions in the Middle East.

September Brent crude futures settled at $96.78, a decrease of $3.01 or -3.88%. September WTI crude futures finished at $89.31, down $2.88 or -3.12%.

Despite the Friday pullback, both benchmarks ended the week with significant gains. WTI rose 9.21% and Brent increased 9.85% over the five-session period. During this stretch, Brent climbed from the mid-$80s to above $100, while WTI moved from $80 to over $92.

Geopolitical Instability and Supply Risks

The market remains sensitive to the physical security of energy corridors. The U.S. Military recently completed a thirteenth consecutive night of strikes against Iranian targets, including maritime capabilities, drone storage, and command centers. Concurrently, Houthi forces struck two Saudi tankers near Bab el-Mandeb this week.

While the Strait of Hormuz remains technically open with U.S. Naval support, analysts note that the market is not trading based on technical openness. Instead, pricing reflects the reality of vessels requiring military escorts, rising insurance costs, and cargoes rerouting around Africa. UBS suggests that Middle East shipping will not recover quickly even if fighting eases, as flows remain depressed.

Although Saudi Arabia maintains spare production capacity, this supply remains hindered by two impaired chokepoints. The Red Sea, previously a workaround when Hormuz faced disruptions, also came under fire this week.

Conflicting Signals from Washington

The diplomatic hopes sparked by Pakistan and China's efforts contrast with aggressive rhetoric from the White House. President Donald Trump stated he is close to deciding on a massive attack against Iran, while Senator Marco Rubio described the current approach as a head for an eye.

On Friday night, President Trump appeared at a rescheduled White House Correspondents' Association dinner at the Waldorf Astoria. During an hour-long speech, he briefly mentioned the Iran war. The event was marked by a mix of humor and political barbs, with the president joking about the possibility of a third term despite the 22nd Amendment's prohibition.

Technical Outlook and Market Indicators

Technical analyst James Hyerczyk noted that Friday's settlement for WTI was below the previous main top of $89.90, which had previously triggered a rally to $93.50. If selling pressure persists, WTI could target a retracement zone between $84.54 and $81.21, with the 50-day moving average at $80.96 serving as the primary trend indicator.

For Brent, a trade through $94.89 would signal initial weakness, potentially extending into a retracement zone of $90.61 to $86.70. The major support remains the 50-day moving average at $85.48. UBS has projected Brent at $85 by year-end, provided the situation normalizes.

Market participants are now watching for concrete signals rather than diplomatic headlines. These indicators include regular transits through Hormuz, a decrease in insurance costs, and the movement of Saudi cargoes through the Red Sea without diversion.