Crude oil prices end winning run with first weekly fall in nearly a month. Can liquid gold slide further?

Oil prices ended lower on Friday and also posted weekly declines for the first time in three weeks as traders weighed signals from the U.S. Federal Reserve on its inflation-fighting policy and reports that an agreement could be reached to restore shipping through the Strait of Hormuz.

Brent crude futures settled 39 cents, or 0.43%, lower at $89.31 a barrel, while West Texas Intermediate crude futures fell 13 cents, or 0.16%, to settle at $83.40 a barrel. For the week, Brent declined more than 5%, while WTI fell more than 4%.

Oil prices came under additional pressure after new Fed Chairman Kevin Warsh indicated that the central bank could raise interest rates later this year to contain inflation.


The U.S.-Israel war with Iran entered its sixth month on Friday. Oil traders have been closely monitoring shipping activity through the Strait of Hormuz, where flows have been recovering unevenly. Before the war began, around 20% of global oil production moved through the key waterway.

Experts say the weekly decline in oil prices was likely driven by the volume that has been able to leave the Strait and the pace at which those flows are increasing. That has allowed Asian refiners to take in and consume more crude.

The U.S. this week announced what it described as the "toughest sanctions in history" on Iran. Tehran condemned the measures as an "inhumane and hostile act" and said the sanctions had lost their effectiveness.

Shipping flows through the Strait remain volatile. Reuters reported that seven commodity vessels passed through on Thursday, preliminary shipping data showed on Friday, down from 17 a day earlier and below the 10-day average of 15. The Bab el-Mandeb, another major shipping chokepoint, recorded 17 commodity vessels, with six entering and 11 exiting.

Where is liquid gold headed?

Goldman Sachs on Thursday estimated that total Gulf exports had recently reached 15 million to 16 million barrels per day. That was still 7 million to 8 million bpd below pre-war levels, but 5 million to 6 million bpd above the lowest point recorded in March.

The length of the disruption will remain a crucial factor for crude prices. JPMorgan estimates that every additional month of disruption could add around $7 to $8 a barrel to Brent prices. If the disruption lasts for three months, the bank expects average monthly Brent prices to reach around $114 a barrel.

Goldman Sachs has separately warned that Brent could rise to $120 a barrel if shipping disruptions through the Strait of Hormuz, the world's most important oil transit route, continue. However, under its base case, the bank expects tensions in the Middle East to eventually ease. It forecasts Brent to average $80 a barrel in the fourth quarter and $75 a barrel next year, while noting that risks remain tilted to the upside if disruptions through the Strait of Hormuz and the Red Sea last longer than expected.

Ponmudi R, CEO of Enrich Money, said crude oil prices would remain closely tied to developments around the Strait of Hormuz. A sustained improvement in shipping flows could further reduce the geopolitical premium in crude and provide relief to emerging-market equities, while renewed disruptions could quickly reverse that trend.

He also said U.S. monetary policy had become the dominant global catalyst following Fed Chair Kevin Warsh's hawkish remarks at Jackson Hole. Markets will now focus on the August jobs report, due on September 4, as well as the next inflation reading. These data points will be important in determining whether the recently increased expectations of a September rate hike hold or ease.

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