Oil dipped slightly on Friday but was still set to end the week above $100 a barrel, its first time since mid-May, while U.S. diesel prices hit a record high, as new attacks on key Middle East shipping routes stoked fears of long-lasting supply disruptions.
Brent crude futures fell $1.65, or 1.53%, to $105.98 a barrel by 07:58 GMT, while U.S. West Texas Intermediate slipped $1.36, or 1.33%, to $101.12 a barrel.
The pullback came after both benchmarks erased earlier gains on a Financial Times report that Middle Eastern foreign ministers are exploring a temporary arrangement with Iran to keep shipping moving through the Strait of Hormuz, the world’s most important oil chokepoint.
Even with Friday’s retreat, the scale of this week’s rally remains extraordinary. Both crude benchmarks surged more than 6% on Thursday alone and were still up over 10% for the week, underscoring how quickly sentiment has shifted from cautious optimism to acute alarm over the security of Gulf energy flows.
“Some headlines of possible new talks in the Middle East are weighing moderately on oil prices today,” said Giovanni Staunovo, energy analyst at UBS. But he was quick to caution against reading too much into the dip: “I keep seeing near-term risks to the upside for oil prices, but we should expect ongoing high price volatility too.”
The renewed selling pressure follows one of the most dangerous weeks yet in the standoff between Washington and Tehran. Iran said it struck 10 vessels near the Strait of Hormuz on Wednesday in direct retaliation after the United States targeted five Iranian oil tankers.
Iran’s Islamic Revolutionary Guard Corps issued a stark warning in the aftermath, vowing to escalate further against any additional strikes, language that traders and shippers alike are treating as a credible threat rather than posturing.
The physical toll on maritime traffic is already visible. Preliminary ship-tracking data released Friday showed vessel transits through the Strait of Hormuz fell to just seven on Thursday, down from 11 the day before and far below the 10-day average of 15.
The strait, a narrow waterway separating Iran from the Arabian Peninsula, handled roughly one-fifth of the world’s daily oil and liquefied natural gas supply before the outbreak of the Iran war in late February, a share that makes even modest disruptions there capable of moving global markets.
The danger is no longer confined to Hormuz. Iran-aligned Houthi forces seized control of Yemen’s Red Sea port of Mocha on Thursday, opening a new front of risk for vessels transiting that route.
Compounding matters, attacks launched from Yemen against Saudi energy facilities have marked what analysts describe as a significant escalation extending the conflict’s reach well beyond Iran and the strait itself and raising the specter of a broader, longer-lasting disruption across the region’s energy infrastructure.
The scale of the damage prompted the International Energy Agency to sharply revise its outlook. The agency now expects both global oil supply and demand to fall further this year than previously forecast, warning that the absence of any meaningful progress toward ending the Iran war means a return to normal Middle East flows is unlikely before 2027, a timeline that pushes well past earlier assumptions of a swifter resolution.
Nowhere is the strain more visible to ordinary consumers than at the diesel pump. Gulf shipping disruptions and Ukrainian strikes on Russian refining capacity pushed the U.S. national average diesel price above $6 a gallon for the first time in history on Thursday, according to price-tracking firm GasBuddy.
“Refined products, particularly diesel, are feeling a one-two punch right now,” said Tim Waterer, chief market analyst at KCM Trade. He warned the pain at the pump is unlikely to ease soon: “As long as both the Gulf shipping constraints and Russian refining outages remain in play, diesel and other refined products are likely to show a higher upside tendency than the broader crude market.”
That dynamic crude prices gyrating on geopolitical headlines while refined product markets grind steadily higher on structural bottlenecks has become a defining feature of this phase of the crisis, leaving trucking, shipping, and agricultural sectors that rely heavily on diesel particularly exposed.
There is little indication the conflict is nearing a resolution. President Donald Trump has given no signal of easing military pressure on Iran and has raised the possibility of striking Iran’s Pickaxe Mountain site, located near the already heavily damaged Natanz uranium enrichment facility.
Even so, Trump suggested he believes the war would come to an end shortly after the November midterm elections, a timeline that offers markets little near-term comfort given the months separating now from then.
Away from the Gulf, China’s state planner announced Friday it will raise retail price caps on petrol and diesel starting September 12, lifting them by 260 yuan and 250 yuan per metric ton, respectively (roughly $38.76 and $37.28).
The adjustment reflects how the ripple effects of the crisis are now forcing policy responses well beyond the Middle East itself, as governments in major consuming nations move to manage the pass-through of higher crude and refined product costs to their domestic populations.
With talks over a potential Hormuz arrangement still in early, unconfirmed stages, and both the Yemen and Gulf fronts showing signs of intensifying rather than cooling, analysts say the market should brace for continued turbulence.
As Staunovo put it, the risks remain tilted to the upside even as day-to-day headlines produce the kind of sharp, whipsaw moves markets have seen this week.
WHAT YOU SHOULD KNOW
Oil surged past $100 a barrel, and U.S. diesel hit a record $6/gallon this week because escalating attacks along the Strait of Hormuz and Red Sea are choking critical shipping routes, and with the IEA now pushing back a return to normal Middle East supply flows to 2027, this isn’t a short-term spike.
The real risk to watch is Hormuz itself: any further disruption there threatens a fifth of the world’s daily oil and gas supply, and with no sign of de-escalation from Washington or Tehran, prices are likely to stay volatile and elevated for a long time to come.
