Oil prices fell Friday, giving back part of Thursday's gains as traders weighed recovering Middle East crude exports against renewed shipping risks and a larger U.S. military buildup in the region.
December Brent crude futures fell 1.1% to $101.12 a barrel, while December West Texas Intermediate futures dropped 1.6% to $89.41 a barrel. Brent had jumped 4.4% Thursday to settle at $102.31 as Middle East supply risks remained in focus.
The oil market is increasingly pricing in a risk premium from the lack of a clear diplomatic off-ramp, Priyanka Sachdeva at Phillip Nova said in a note. Markets are increasingly accounting for the possibility that supply chains remain vulnerable for longer, she said.
The Pentagon is sending a third aircraft-carrier strike group and an additional Marine expeditionary unit to the Middle East, adding around 9,000 to 10,000 troops to the region by the end of November, The Wall Street Journal reported.
Shipping risks in the Strait of Hormuz also remain elevated. U.K. Maritime Trade Operations said a tanker was struck by an unknown projectile while transiting the strait Thursday, causing a fire. The crew was reported safe, while damage and any environmental impact remained unclear. The incident was the fifth UKMTO-reported tanker strike or suspected strike in the strait since Sept. 28.
Physical markets remain tight despite the recovery in crude flows. MUFG analysts said North Sea physical prices remain elevated as global inventories decline and markets assess the possibility of U.S. restrictions on diesel exports. OPEC+'s monitoring committee, which meets Sunday, might leave production policy unchanged while security around Middle East supply flows remains uncertain, the analysts said.
Refined-product markets remain particularly constrained. Middle Eastern diesel exports are running at around 25% of preconflict levels, while Russian diesel exports have fallen to about 20% of their May level, according to The Wall Street Journal.
The European Commission said European Union oil supply remains stable for now despite high diesel and jet-fuel prices. Emergency stocks remain at high levels and available in case of market disruption, while the commission said it is prepared to convene its Oil Coordination Group before its scheduled Oct. 15 meeting if conditions require.