Brent crude dives 4% to $96.64 as Strait of Hormuz tanker traffic collapses

Oil prices tumbled Friday as a 4% drop in Brent crude snapped a week of gains fueled by Middle East supply fears.

Brent crude fell 4% to $96.64 a barrel Friday as only one oil tanker transited the Strait of Hormuz, the lowest daily count since May 7, deepening a supply disruption from the Middle East conflict.

"If escalation continues and the Strait of Hormuz remains closed, the impact will land on an energy market with far less resilience than in the spring," said Teddy Bunzel, head of geopolitical advisory at Lazard Asset Management.

The pullback pushed the U.S. Dollar Index lower as safe-haven demand eased, while the 10-year Treasury yield slid to 4.66% from 4.71%. The S&P 500 rose 0.4% as falling crude tempered inflation concerns. Despite Friday's decline, Brent remains on track for a weekly gain of about 10% after settling above $100 a barrel Thursday for the first time since May.

The 4% plunge masks a market still pricing severe supply risk. Before the Iran conflict escalated in late February, Brent traded around $72 a barrel. With strategic reserves depleted and OPEC+ meeting later this month to discuss output policy, the buffer against further supply shocks has narrowed considerably.

The collapse in Strait of Hormuz traffic — a chokepoint for about 20% of global oil consumption — has been the primary driver of crude's rally this week. Kpler data showed only one tanker crossed the strait Thursday, highlighting how quickly the waterway has emptied since hostilities intensified. The last time transit volumes fell to similar levels was in early May, when a previous round of tensions briefly disrupted shipping lanes.

The dollar's retreat against major currencies provided the clearest signal that Friday's oil selloff was driven by profit-taking and hopes for diplomacy rather than a fundamental shift in supply-demand balances. The dollar index weakened as demand for safe-haven assets declined, with traders citing reports of potential new U.S.-Iran peace talks as a trigger for the reversal. EUR/USD and GBP/USD gained ground while USD/CAD, sensitive to crude prices given Canada's oil exports, slipped.

Higher crude prices earlier in the week had already begun filtering through to consumer budgets. The national average U.S. gasoline price stood at $4.10 a gallon, according to AAA — nearly a dollar higher than a year ago and threatening to squeeze household spending just as the Federal Reserve prepares for its July meeting. Markets now price about a 36% probability of a rate hike at the upcoming meeting, according to CME FedWatch, up from near zero before the oil rally began.

The last time Brent surged past $100 and then corrected more than 4% in a single session was in April, following a similar pattern of geopolitical escalation followed by diplomatic overtures. In that instance, crude stabilized around $95 before resuming its upward trend two weeks later as talks stalled.

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