Oil Extends Losses to 4% as Markets Bet on Potential US-Iran Peace Deal

Oil prices deepened their decline on Friday, falling more than 4%, as investors increasingly priced in the possibility of a diplomatic breakthrough between the United States and Iran that could ease tensions in the Middle East and restore smoother energy flows through the strategically vital Strait of Hormuz.

The latest selloff followed reports from Iran's semi-official Mehr News Agency that a draft peace agreement is under discussion, potentially paving the way for the reopening of the Strait of Hormuz and the removal of U.S. sanctions on Iranian oil exports. Washington has yet to officially comment on the reports.

Market sentiment shifted sharply after the news, with U.S. West Texas Intermediate (WTI) crude for July delivery dropping 4.16% to $84.06 a barrel. Brent crude for August delivery fell 3.87% to $86.88 a barrel.

Latest Oil Prices:

WTI Crude $84.65 -3.06 -3.49%

Brent Crude $87.18 -3.20 -3.54%

Murban Crude $83.99 -3.26 -3.74%

WTI Midland $84.72 -3.39 -3.85%

Opec Basket $97.18 -1.74 -1.76%

Indian Basket $92.58 +0.03 +0.03%

Natural Gas $3.114 +0.027 +0.87%

Gasoline $3.032 -0.070 -2.24%

Heating Oil $3.399 -0.114 -3.25%

Brent has now declined in five of the last seven trading sessions, touching its lowest level since early March as fears of supply disruptions continued to ease.

The losses come a day after U.S. President Donald Trump announced the cancellation of planned military strikes against Iran, signaling that a memorandum of understanding could be signed over the weekend in Europe. Trump indicated that negotiations had reached the highest levels of Iran's leadership and had received approval in principle.

However, Iranian officials struck a more cautious tone. Foreign Ministry spokesperson Esmaeil Baghaei reportedly said that discussions remain ongoing and that no final agreement has been reached.

The prospect of reduced geopolitical risk sparked a broad rally across global financial markets. Investors welcomed the decline in oil prices, viewing it as a sign that the risk of a prolonged stagflationary shock may be receding.

"The overnight fall in Brent crude has triggered a significant rebound in bond and equity markets," said Jim Reid, Global Head of Macro Research and Thematic Strategy at Deutsche Bank.

U.S. equity futures linked to the S&P 500, Nasdaq, and Dow Jones Industrial Average moved higher, while European stocks also advanced.

In fixed-income markets, the yield on the benchmark 10-year U.S. Treasury note fell two basis points to 4.447%, while the two-year Treasury yield slipped by a similar margin to 4.052%, reflecting reduced demand for inflation hedges and safe-haven assets.