Diesel prices in the U.S. reached $6.0556 a gallon for the first time.
Oil prices slipped on Friday but remained near four-month highs as retail diesel prices hit a new record.
Brent crude's November contract (BRN00) (BRNX26) declined by 3% to $104.48 a barrel, bringing the international benchmark up 15% since the start of September. West Texas Intermediate's October contract (CL.1) (CLV26) fell 2.5% to $99.86 after hovering above the $100 threshold earlier in the session.
The Financial Times reported late Thursday that Gulf foreign ministers are planning to meet officials from Iran in the hopes of securing a deal to temporarily support shipping through the Strait of Hormuz, an initiative being encouraged by Oman and Iran.
For Patrick Munnelly, market strategist at Tickmill Group, the pullback in oil prices does not equate to risks disappearing in the waterway, but signals investors weighing a slower, more prolonged conflict.
"It shows that the market has moved from pricing a sudden 'Armageddon' scenario to pricing a more continuous, probabilistic disruption," he said. "Oil prices remain supported by geopolitical risk, but they are retreating from elevated levels because traders are reassessing whether the actual physical impact justifies the earlier panic premium."
Average diesel prices in the U.S. reached $6.0556 a gallon for the first time ever, marking a jump of 63% since this time last year, according to AAA. In California, diesel prices have risen as high as $7.9827 a gallon.
The moves in oil also come after the International Energy Agency said it expects demand for oil to reduce by 2.5 million barrels per day this year, a higher estimation than last month's forecast of a decline of 1.6 million for 2026.
Oil supply is poised to fall by 5.7 million barrels a day to 100.7 million barrels per day for the year, with recovery now not anticipated until 2027, per the IEA's September report on the oil market.
"The continuing impasse in negotiations between the United States and Iran delays the prospect of a normalisation of flows into next year," it said.
The agency also found that oil production slipped by 1.6 million barrels per day month-on-month to 100.1 million barrels in August as shipping through the strait remained constrained.
Bloomberg reported Thursday that Saudi Arabia told members of the Organization of the Petroleum Exporting Countries its production of crude oil in August plunged to its lowest level since 1990.
It comes as tensions have escalated between the country and Yemen's Iran-backed Houthi rebels, who on Thursday seized control of Yemen's port city of Mokha, an area key to international shipping through the Red Sea.
And on Friday, Yemeni government sources reportedly told Reuters that the Houthis reached the country's town of Dhubab, which is positioned on the Bab el-Mandeb ?Strait, a key route for global trade.
-Nora Redmond