(Photo: David McNew)
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Oil prices were in retreat on Friday after having risen for three straight sessions earlier in the week, as diplomatic overtures to bridge differences between the U.S. and Iran continue.
The global proxy oil futures benchmark Brent was trading at $92.94 per barrel at 10:31am EDT on Friday, down 2.16% or $2.05, as geopolitical turmoil in the Middle East – that began with the Iran War on February 28 – went past the three-month mark.
The U.S. West Texas Intermediate front-month oil futures contract was also down, trading 3.2% or $2.98 lower at $90.02 on Friday. That’s after U.S. President Donald Trump issued his red line overnight that American forces would maintain the ceasefire with Iran unless they suffer any fatalities.
Previously the President said both sides were close to a deal on May 29, before another round of skirmishes with Iran that saw the U.S. target an oil tanker heading to the country and Tehran’s missile bases.
Iran subsequently responding with an attack on sites in Kuwait, including Kuwait City’s international airport and U.S. bases. However, channels of communication remain open between both sides via mediators in Pakistan and Qatar.
Oil Prices Up Nearly 40% On Last Year
A cooling of oil prices implied crude futures ended trading in London around 1.10% higher on the week. Overall, oil prices are 7.45% lower on the month and broadly flat compared to three months ago, but nearly 40% higher compared to the same point last year.
These elevated price levels are beginning to hurt, especially for consumers in Europe and Asia. In the case of Europe, it’s natural gas and aviation fuel that happen to be the primary areas of concern, while Asian concerns largely center around crude oil, liquefied petroleum gas and aviation fuel.
In particular, it’s aviation fuel that is causing anxieties in both regions. Between the start of the war and end of April, jet fuel prices rose by 97%, according to S&P Global Energy.
It has seen major flag carriers in both regions reduce operating capacity and cut routes, including Germany’s Lufthansa and Hong Kong’s Cathay Pacific. In response, heads of global airlines will be gathering in Rio de Janeiro, Brazil, over the weekend from June 6 to 8 to discuss their industry’s biggest crisis since the Covid-19 pandemic.
That’s as ratings agency Moody’s downgraded the global airline sector’s outlook to negative “driven by severe fuel price volatility linked to the Iran war and Strait of Hormuz disruptions.”
It forecasts the industry’s aggregate operating profit to drop more than 35% in 2026 before recovering in 2027 with “U.S. carriers taking the hardest hit.”
Higher oil prices have also caused inflationary spikes in Europe, with inflation in the euro area having risen to 3.2% in May, as well as across Asia, where the International Monetary Fund expects it to average 2.6% in emerging economies and 3.3% in Southeast Asia.
Iran Not Immune To Inflationary Pressures
Continent-wide averages in Asia often mask the troubling situation some nations find themselves in where the inflation rate is well above averages (e.g. Pakistan where inflation came in above 11% in May).
Much has been said about Iran holding firm in negotiations with the U.S. but it too is suffering. Inflation in the country has reached its highest level since World War II.
Over three months after the start of the war, Iran’s consumer price index measured in urban areas is 77.2% above the previous year’s figure in May, state news agency IRNA reported on Wednesday, citing Iran’s central bank.
For many, the end of the tension in the Middle East cannot come soon enough as the domino effect of volatile oil prices is felt all around the globe.
Disclaimer: The above commentary is meant to stimulate discussion based on the author’s opinion and analysis offered in a personal capacity. It is not solicitation, recommendation or investment advice to trade oil stocks, futures, options or products. Oil markets can be highly volatile and opinions in the sector may change instantaneously and without notice.
