Oil prices remain near $100 as Iran supply fears overshadow Russia measures

Oil prices moderated on Friday, but stayed elevated near the key $100 a barrel level, as concerns over supply disruptions stemming from the U.S.-Israel war outweighed U.S. plans to permit purchasing of some sanctioned Russian crude.

Brent oil futures for May fell 0.3% to $100.17 a barrel by 06:44 ET (10:44 GMT), while West Texas Intermediate crude futures dropped 0.9% to $94.92 a barrel. But Brent remained on track for a second week of strong gains as the Iran war -- and its impact on global oil flows -- showed few signs of abating. 

Brent crude prices initially fell as much as 1% after the U.S. Treasury Department said it will allow the purchase of Russian oil already at sea to help offset supply shocks from the fighting in the Middle East. 

Treasury Secretary Scott Bessent said the move was aimed at helping stabilize energy markets amid supply shocks stemming from the war with Iran. The U.S. had earlier this week issued some waivers for Russian oil purchases, with world no.3 importer India being allowed to ship crude from Moscow. 

Bessent noted as well that the U.S. is planning on the Navy providing an escort for commercial vessels traversing the Strait of Hormuz, the narrow waterway south of Iran through which a fifth of the world’s oil passes.

The threat of Iranian attacks has effectively halted shipping in the strait. As a result, fears have abounded of an energy-induced inflation shock that could lead to a more hawkish stance for central banks around the world.

Against this backdrop, Brent prices have been on a wild ride this week. At one point, the global benchmark had soared to as high as almost $120 a barrels, before later retreating briefly below $90 a barrel.

While the extreme fluctuations have captured the headlines, whether the increase will be here to stay has become a central point of debate among investors, analysts at Capital Economics flagged.

"As it stands, investors in the options market put a one-in-five chance of Brent crude prices being $100 per barrel or higher in three months’ time," said Kieran Tompkins, Senior Climate and Commodities Economist at Capital Economics, in a note.

U.S. and Israel exchange strikes with Iran

The U.S. and Israel has carried on their joint assault on Iran for well over a week, while Tehran has launched waves of missile and drone strikes in retaliation, targeting oil infrastructure in several surrounding Middle Eastern countries. 

New Iranian Supreme Leader Mojtaba Khamenei vowed to block the Strait of Hormuz, a move that some analysts have described as a push to gain leverage over the U.S. and Israel. 

The Hormuz closure and oil facility attacks ramped up concerns over long-term oil supply disruptions from the conflict. 

"The conflict has now moved beyond a short-lived geopolitical shock and into a phase where supply losses are increasingly structural rather than transient," ANZ analysts wrote in a note. "Price volatility is likely to remain high, but the skew is increasingly to the upside. Importantly, the longer the disruption persists, the higher the price required to restore market balances."