Crude oil prices fell more than 3% on Friday to below $85 per barrel, hitting an eight-week low as markets weighed growing optimism over a potential US-Iran interim peace agreement.

Key Highlights

  • Crude oil dropped over 3% to below $85 per barrel, its lowest level in eight weeks.
  • Officials signalled progress toward reopening the Strait of Hormuz ahead of the upcoming G7 meeting.
  • Iran's Foreign Minister said a Memorandum of Understanding between Washington and Tehran had never been closer.
  • US forces reportedly intercepted Iranian drones near commercial vessels, underscoring lingering risks.

Oil markets extended their decline on Friday as crude slipped below the $85 mark, marking the steepest weekly drop in two months. The sell-off reflected mounting investor confidence that the prolonged standoff between the United States and Iran could be approaching a resolution.

Officials familiar with the discussions indicated that both sides were moving toward an arrangement that would allow for the reopening of the Strait of Hormuz, a critical artery for global energy flows. Negotiators were said to be targeting a timeline that could coincide with the upcoming G7 meeting, adding urgency to the talks.

Iran's Foreign Minister Abbas Araghchi described the prospects for a Memorandum of Understanding as closer than at any point during the conflict, fuelling expectations among traders that a de-escalation could materially ease supply concerns tied to the region.

Despite the optimism driving the crude oil price decline, market participants remained cautious. Previous rounds of reported breakthroughs in the Iran negotiations have repeatedly failed to translate into concrete agreements, leaving traders wary of positioning too aggressively around headlines.

Adding to the uncertainty, reports emerged that US forces had intercepted Iranian drones near commercial vessels operating in the Gulf region, a reminder that military risk remains elevated even as diplomatic channels show signs of progress.

The market also saw a brief reversal after President Trump cast doubt on a reported draft agreement, stating that the terms circulating publicly did not accurately reflect what had been discussed in negotiations. The comments injected fresh volatility into oil price action, even as the broader trend for crude oil futures remained tilted toward the downside on hopes for a Strait of Hormuz resolution.

For energy investors tracking WTI crude oil price movements, the combination of geopolitical headlines and shifting diplomatic signals continues to be the dominant driver of near-term volatility, overshadowing traditional supply and demand fundamentals.