Crude oil benchmarks posted their second weekly loss in a row on Friday, amid conflicting signals over a potential peace deal framework between the US and Iran.
West Texas Intermediate settled at $87.76 per barrel, down from $97/bbl the previous week, while Brent closed at $91.99/bbl, down from $101.14/bbl a week earlier.
Brent futures were headed for a weekly loss of over 11%, while West Texas Intermediate futures dropped by over 9%.
Saxo Bank strategists said oil fell to a five-week low after the US and Iran tentatively agreed to extend their ceasefire by 60 days, with Brent heading for its biggest monthly decline since 2020.
The week was marked by shifting headlines that drove sharp intraday volatility in the paper market, while underlying physical oil fundamentals limited downside.
Mid-week optimism, sparked by reports of a draft peace agreement in Iranian state media, briefly triggered a sell-off on Wednesday before reversing as the conflict escalated into active warfare.
Following President Donald Trump's dismissal of the peace rumors, the US military launched pre-dawn strikes against an Iranian drone base near Bandar Abbas airport.
In retaliation, Iran's Islamic Revolutionary Guard Corps executed a counterstrike on Thursday, targeting a regional US airbase with missiles.
By late week, sentiment shifted again as US and Iranian negotiators reportedly closed in on a tentative memorandum of understanding.
This unsigned draft agreement aims to establish a 60-day ceasefire extension and guarantee unrestricted, toll-free passage for commercial oil tankers through the strategic Strait of Hormuz, analysts said.
However, ING analysts noted that the framework lacks official verification from Tehran and remains entirely dependent on a formal sign-off from Trump, who earlier in the week rejected a rumored peace deal as a "complete fabrication."
On Friday, Trump said the retaliatory US naval blockade against Iran in the Gulf of Oman will be lifted, noting that vessels previously affected by the blockade could now return home.
"Ships caught in the Strait due to our amazing and unprecedented Naval Blockade, which will now be lifted, may start the process of 'heading home!'," Trump said in a Truth Social post on Friday.
He added that Iran must permanently forgo nuclear weapons and allow unrestricted shipping traffic through the Strait of Hormuz for him to approve a deal to end the ongoing conflict.
"The Strait of Hormuz must be immediately open, no tolls, for unrestricted shipping traffic in both directions," Trump said.
Security risks in the Strait of Hormuz remained elevated.
The US Naval Forces Central Command on Friday kept the threat level in the Strait of Hormuz at "critical," warning that ongoing military activity could increase risks for commercial vessels operating in the area.
"Military operations will be conducted within the area north of the Musandam Peninsula in the Strait of Hormuz," US Centcom said in an advisory published by the Joint Maritime Information Center.
It described Iran's efforts to assert control over the Strait as "dangerous" and "illegal."
The advisory also alleged that Iran continues to place mines in the Strait, hindering safe passage.
"Iran continues to impede mine clearance and safe transit through the Strait of Hormuz," the advisory said.
Trump, in his earlier post, said that any mines placed in the Strait would be removed.
"All water mines (bombs), if any, will be terminated (we have removed, through detonation, numerous such mines with our great underwater mine sweepers. Iran will complete the immediate removal and/or detonation of any mines that are left, which will not be many!)," Trump posted.
On the supply side, the US Energy Information Administration, in its weekly crude inventory report, confirmed that commercial crude oil stockpiles drew down by 3.3 million barrels to 441.7 million barrels for the week ended May 22.
Experts said that this tightening of physical supply indicates downstream refinery demand and robust exports, keeping physical barrels scarce for prompt availability even as geopolitical risk premiums fluctuated.
Energy institutions warned, however, that a political signature will not instantly resolve global supply constraints.
International Energy Agency Chief Fatih Birol stated that current oil and gas disruptions have officially surpassed the scale of past crises.
The targeted attacks have damaged over 80 regional energy facilities, including major oil fields, gas sites, and refineries, with more than one-third suffering severe structural damage, meaning that restoring disrupted supply systems will take considerable time even if the situation improves.
International agencies issued a joint statement on Friday saying that global oil inventories are being drawn down at a "record pace" as disruptions linked to the Strait of Hormuz continue to remove significant supply from the market.
The heads of the IEA, International Monetary Fund, World Bank Group and World Trade Organization met on May 28 to coordinate their response to the energy and economic fallout from the Middle East conflict and assess risks facing global markets.
"If shipping flows do not return to normal, continued rapid depletion of global oil inventories ahead of peak summer oil demand in the Northern Hemisphere would present increasing risks for fuel security, market conditions, and broader economic resilience," according to the joint statement released Friday.
Meanwhile, the US oil rig count rose by four from 425 the previous week to 429 in the week ending May 29, according to data from Baker Hughes (BKR) released Friday. That compares with 451 oil rigs in operation a year earlier.
The consolidated North American oil and gas rig count, a key early indicator of future production levels, rose by 28 to 728 from 696 the previous week.
Money managers in the WTI crude futures and options markets maintained their net long positions in the week ended May 22, according to the Commodity Futures Trading Commission's latest Commitments of Traders report released on Friday.
The data showed that money managers held 202,764 long positions, down 13,650 from May 19, while short positions rose 9,362 to 87,002.