Oil prices slipped on Friday, halting a two-day climb, after a media report that the U.S. and Iran were exploring a phased deal to reopen the Strait of Hormuz. Traders chose to focus on the report and looked past the lack of any official diplomatic breakthrough between Washington and Iran this week.

Oil market participants were also keeping a close eye on an escalating conflict between Iran-backed Houthis and the Saudi Arabia-backed government in Yemen, with attacks on Saudi energy infrastructure exacerbating supply disruption concerns.

At 15:15 ET (19:15 GMT), Brent crude futures expiring in November dipped 1.8% to $104.67 a barrel, while U.S. West Texas Intermediate crude futures expiring in November shed 2.2% to $92.51 a barrel. 

Oil prices slipped on Friday, halting a two-day climb, after a media report that the U.S. and Iran were exploring a phased deal to reopen the Strait of Hormuz. Traders chose to focus on the report and looked past the lack of any official diplomatic breakthrough between Washington and Iran this week.

Oil market participants were also keeping a close eye on an escalating conflict between Iran-backed Houthis and the Saudi Arabia-backed government in Yemen, with attacks on Saudi energy infrastructure exacerbating supply disruption concerns.

At 15:15 ET (19:15 GMT), Brent crude futures expiring in November dipped 1.8% to $104.67 a barrel, while U.S. West Texas Intermediate crude futures expiring in November shed 2.2% to $92.51 a barrel. 

The harsh rhetoric was overlooked after Trump on Tuesday confirmed that indirect talks between U.S. representatives and the Iranian delegation on the sidelines of the UN had taken place.

But U.S. Secretary of State Marco Rubio on Wednesday tempered expectations, saying he wouldn’t characterize the discussions as a "major breakthrough" but more a "continuation of conversations that have occurred in the past."

Iran’s foreign ministry spokesperson Esmaeil Baqaei on Thursday said a round of messages had been exchanged with the U.S. through Qatari mediation, in which Tehran had laid out its conditions to return to negotiations.

Those conditions include the "cessation of aggressive U.S. actions, including the naval blockade and economic terrorism; ending the war on all fronts; release of Iran’s frozen or restricted assets; acceptance of a safe shipping route in the manner agreed upon between the two coastal governments," Baqaei said.

Reuters on Thursday reported that U.S. and Iranian negotiators in New York had discussed a phased path out of the war that would involve Tehran reopening the Strait of Hormuz and Washington lifting its economic blockade, citing sources close to the talks.

"If such events were to pass, then traders expect oil prices to drop back significantly," David Morrison, senior market analyst at Trade Nation, said.

"But there are still plenty of obstacles to overcome first. The Houthis are still threatening Saudi Arabian shipping and energy infrastructure, and that’s before the U.S. and Iran put the aggressive rhetoric on display at the UN General Assembly behind them," he said.

"Both sides distrust each other, and it’s worth remembering, as if anyone could forget, that the previous 60-day ceasefire based on the memorandum of understanding signed by both parties in June lasted less than a week," Morrison said.

"Still, while the Iranian regime seems perfectly content to see its country and people go up in flames rather than lose face, the Trump administration seems more desperate than ever to end the war, despite anything President Trump may say about no conclusion until after the November mid-terms," he added.

Speaking of Saudi Arabia, the kingdom on Thursday said it had intercepted six ballistic missiles fired by Yemen’s Iran-backed Houthis toward areas including Taif and the Yanbu region on the Red Sea.

The attacks revived concerns about Saudi oil infrastructure and export routes, particularly after earlier damage to the kingdom’s East-West Pipeline disrupted crude shipments to Yanbu, a major Red Sea export hub. Saudi Arabia restarted the pipeline earlier this week, but tanker loadings from Yanbu have yet to fully resume.

Meanwhile, President Xi Jinping’s first state visit to the U.S. since 2015 also grabbed some attention this week. With China being Iran’s biggest trading partner a key buyer of the country’s crude oil, there had been some hopes that the issue would be discussed between Xi and Trump.

Trump on Friday said Xi had departed Washington and that their meeting was "one of Friendship, Strength, and Success, for both China and the U.S.A. We will be meeting again in November, in China, and then at the G20 in December, in Miami, Florida. Much has been, and will be, accomplished." He did not provide any concrete details on the talks.

"We made it very clear to them weeks ago that any help that they would give Iran, whether it be direct or indirect, whether it be intelligence or parts or military equipment, was totally unacceptable. President Trump made that very clear again yesterday," David Perdue, the U.S. Ambassador to China, told CNBC on Friday.

Elsewhere, diesel markets also remained in focus after U.S. prices climbed to record levels. The Trump administration is considering ways to increase domestic diesel supplies, with Energy Secretary Chris Wright contacting executives at major refiners to gauge support for a voluntary restriction on diesel exports, Reuters reported.

The discussions come after a Politico report of a possible 90-day export ban, which the White House denied. Politico on Friday said the administration was weighing alternatives to a ban, such as passing the issue down to state level and boosting distribution of "dyed diesel," citing three people familiar with the negotiations.

Source: Investing.com

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