Oil prices took a dip this week as tensions in the Middle East eased following statements from Iranian officials about recent incidents. Benchmark Brent crude futures fell nearly 1% to trade around $86 per barrel on Friday after spikes earlier in the week. The developments signify de-escalating hostilities could help stabilize energy markets.
Reports surfaced of explosions in the Iranian city of Isfahan which sources linked to possible Israeli airstrikes. However, Tehran maintained the incidents were overblown and emphasized it did not intend to seek reprisals at this time. With Iran playing down the events, fears of an escalating conflict appear to have receded for now.
Geopolitical risks are a constant factor affecting oil supply concerns. But with a key producer signalling a willingness to avoid further escalation, traders no longer saw an imminent risk premium warranted. Prices had jumped over $3 earlier in the week on the initial reports out of Iran.
Supply remains tightly balanced globally as demand recovers from the pandemic. The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia have maintained restrictions on output to support values. Any potential Iranian export disruption had amplified worries over availability. But de-escalation of Middle Eastern tensions this week helped oil give back some of its surge.
