Oil Prices Drop Sharply on Hopes for Hormuz Breakthrough

Front-month crude oil prices fell sharply in early trading Friday, with West Texas Intermediate (WTI) dropping 3.97% to $87.55 per barrel, according to live market data. The global benchmark Brent crude fell 3.52% to $95.89. The drop comes amid growing market expectations for a diplomatic resolution to the Middle East conflict that has blocked the Strait of Hormuz.

The price decline reflects "a clear unwind of the geopolitical risk premium," according to Naeem Aslam, CIO at Zaye Capital Markets, in a statement to Rigzone. Analysts cited hopes for a potential U.S.-Iran peace deal and the reopening of the critical waterway as pressuring prices. The Strait of Hormuz usually accounts for 20 percent of global crude supply, and its closure has caused a significant shortfall, Paolo Broccardo, CEO at BankPro, noted in a separate analysis.

Despite the day's losses, underlying physical market conditions remain tight. "The physical market is really demanding much higher prices," Barclays Plc analyst Lydia Rainforth said in a Bloomberg TV interview on Thursday, noting the loss of over 10 million barrels a day of supply. Broccardo added that while a reopening could return supplies, volumes would likely return gradually over several weeks, potentially leaving prices elevated.

For Bakken operators, the price move is tempered by a stable local differential. Bakken crude was priced at a discount of $3.42 per barrel versus WTI on Friday. This means Bakken wellhead prices are directly impacted by the sharp drop in the benchmark. The recent volatility underscores the market's sensitivity to diplomatic headlines, with Broccardo warning that prices "could remain at risk of a strong rebound in case of any setback in the diplomatic talks."

Supporting the market, U.S. commercial crude oil inventories decreased by 0.9 million barrels to 463.8 million barrels for the week ending April 10, according to the latest U.S. Energy Information Administration (EIA) data. Total petroleum stocks also fell by 13.1 million barrels week-on-week. Distillate fuel inventories, which include diesel, fell by 3.1 million barrels and are about six percent below the five-year average.

Natural gas prices showed modest gains, rising $0.04 to $2.69 per MMBtu. Looking ahead, Zaye Capital Markets sees oil consolidating within a $90-$100 range for Brent, with near-term direction driven by diplomatic progress and evolving supply expectations.