Global oil benchmarks posted a second straight week of gains as the energy market grapples with a tightening blockade in the Strait of Hormuz and the UAE's exit from OPEC in a historic fracture of the alliance
West Texas Intermediate closed Friday at $102.5/bbl, up from $94.88/bbl the previous week, while Brent futures settled higher at $109.2/bbl, up from $105.98/bbl a week earlier.
Both crude benchmarks, including Brent and West Texas Intermediate, added 3.5% and 8%, respectively, on a weekly basis.
"Brent Crude remains elevated after hitting a wartime high on Thursday, with no sign that US and Iranian blockades of the Strait of Hormuz will be lifted anytime soon, prolonging and worsening the supply squeeze," Saxo Bank analysts said.
The market has been characterized by extreme volatility this week, driven by a combination of unprecedented geopolitical supply shocks and a structural shift in the OPEC+ alliance.
The week opened under immense pressure. Following nine weeks of conflict in the Middle East, the Strait of Hormuz remains effectively closed to significant commercial traffic.
By Tuesday, exports through the Strait had plummeted to just 3.8 million barrels per day, a staggering drop from the pre-crisis levels of over 20 mb/d.
"An oil major has warned of imminent critical shortages for some nations. However, Thursday's sharp reversal underscores a market that is taking the stairs up but risks the elevator down on any sudden easing headline - making conditions exceptionally challenging for traders," Saxo Bank analysts added.
On Wednesday, Brent crude rose for its seventh consecutive session, hitting levels not seen since the peak of the Russia-Ukraine crisis in 2022.
The most significant market-moving event occurred mid-week with the surprise announcement that the UAE would officially exit OPEC and the OPEC+ alliance, effective May 1.
This departure, the most significant since Qatar and Angola's exits, has raised serious questions about the future of quota discipline within the remaining OPEC members.
The market is currently weighing the long-term bearish potential of more UAE supply against the short-term bullish reality of the Middle East supply blockade.
On Friday, the US Treasury Department's Office of Foreign Assets Control issued an alert warning of sanctions risks tied to Iran-linked payments for Hormuz transit, flagging potential exposure for global firms and financial institutions.
"Maritime industry participants involved with vessels calling at Iranian ports face significant sanctions risk under multiple sanctions authorities targeting Iran's shipping sector and ports, and OFAC will continue to aggressively target Iran's main revenue-generating sectors, in particular its petroleum and petrochemical sectors...," OFAC's alert said.
Iran may seek payments through government-issued fiat currency, digital assets, offsets, swaps, or in-kind payments, including donations to entities such as the Iranian Red Crescent Society, OFAC added.
US sanctions prohibit American individuals and US-controlled foreign entities from engaging in transactions with the Iranian government unless specifically authorized or exempt, OFAC said.
Addressing reporters on Friday, Trump said oil and gasoline prices will tumble once the war ends.
"When the war ends, gasoline prices are going to tumble because there is so much right now on the scene already loaded into tankers, tankers that can't escape the Strait," Trump said, adding that gasoline prices are likely to fall to record lows.
The US President described the US naval blockade as "unbelievable."
"The blockade has been unbelievable, powerful, 100% it's been actually unbelievable. If we left right now, we'd have a great victory, but we're not doing that, negotiating with them," Trump said.
Meanwhile, the market remains in backwardation, with spot prices higher than forward contracts, indicating tight prompt supply amid strong demand.
A wide price disconnect emerged when futures hovered around $110/bbl, while physical crude in some regions touched nearly $150/bbl as refiners scrambled for available barrels.
On the supply front, US crude stockpiles dropped by 6.2 million barrels to 459.5 mmbbls in the week ended April 24, the Energy Information Administration said in its weekly report on Wednesday.
Crude inventories are now about 1% above the five-year average for this time of year, the EIA said.
The US oil rig count rose by one from 407 the previous week to 408, in the week ending May 1, according to data from Baker Hughes (BKR) released Friday. That compares with 472 oil rigs in operation a year earlier.
The consolidated North American oil and gas rig count, a key early indicator of future production levels, dropped by four to 670 from 674 the previous week.
Money managers in the WTI crude futures and options markets maintained their net long positions in the week ended April 28, according to the Commodity Futures Trading Commission's latest Commitments of Traders report released on Friday.
The data showed that money managers reported 219,650 long positions, down 827 from April 21, while short positions were up 7,073 to 84,149.
For the coming week, analysts expect the market to remain highly sensitive to any headlines regarding Hormuz traffic or ceasefire negotiations.