Oil Slips Below $85 as U.S.-Iran Deal Hopes Ease Supply Fears

Oil prices fell in early Asian trade as President Donald Trump agreed to cancel a planned U.S. strike on Iran pending a deal to reopen the Strait of Hormuz, easing fears that pushed WTI above $85.

"We have just been asked by Iran, and other Middle Eastern Countries, to hold off any attack in that the perimeters of a deal has been agreed to," Trump wrote on Truth Social, adding that the U.S. was "locked and loaded and ready to go" with force "at levels of Military Terror, Strength, and Power not seen since World War II."

September WTI crude settled at $84.87 a barrel Friday, up 1.29 percent, while Brent finished at $90.12, after oil touched $87.93 in July as Houthi blockades in the Red Sea and Ukrainian drone strikes on Caspian Pipeline Consortium assets tightened supply. Russian output fell to 8.928 million barrels a day in June, the lowest in 2.5 years.

A U.S.-Iran agreement would remove the biggest geopolitical risk to global crude flows, potentially returning Iranian barrels to a market already absorbing record output from Guyana's Stabroek field and Suriname's GranMorgu project. If talks collapse, the risk premium that has kept Brent above $90 could snap back quickly, with the Strait of Hormuz carrying roughly a fifth of global oil consumption.

Deal Terms and Market Reaction

Trump said the proposed agreement would include the "immediate, complete, and total" reopening of the Strait of Hormuz and an end to what he described as Iran's nuclear threat, with Israel joining the U.S. in supporting the delay while negotiations continue. Neither Iran nor Israeli officials immediately confirmed Trump's account, and the White House released no additional details on whether a formal ceasefire or written framework had been reached.

The prospect of a deal reverses a week of escalating tension that had driven crude higher. Brent rose 1.2 percent to $90.12 on Friday, and WTI gained 1.29 percent to $84.87, as supply disruptions in the Strait of Hormuz, Red Sea blockades and Ukrainian strikes on Russian pipeline assets tightened the market. Russian output fell to 8.928 million barrels a day in June, the lowest in 2.5 years, after attacks on refineries and a domestic fuel shortfall.

What a Deal Would Mean for Supply

Iran holds some of the world's largest proved oil reserves, and a return of its exports would add barrels to a market already absorbing record output from Exxon Mobil's Stabroek consortium in Guyana, where production has surpassed 900,000 barrels a day, and Suriname's $26 billion GranMorgu project slated for a 2028 launch. The Stabroek consortium recovered $55 billion in expenses almost two years early, and Guyana's free cash flow is on track to double by 2030.

The last time the Strait of Hormuz faced a sustained threat, in 2019, tanker attacks and the downing of a U.S. drone pushed Brent above $75 before prices retreated as supply fears eased. A similar unwind could follow if a U.S.-Iran framework is finalized, though traders remain wary given the absence of confirmation from Tehran.

For oil-importing economies, a deal would lower energy costs and ease inflation pressure, while producers and energy equities would face margin compression. A softer crude complex would also support the dollar, which has strengthened as the Federal Reserve holds its overnight rate at 3.5-3.75 percent. The market now watches for confirmation from Iran and Israel, with any breakdown in talks likely to restore the risk premium that has kept Brent above $90.

This article is for informational purposes only and does not constitute investment advice.