Oil prices fall 3% but remain on track for biggest weekly gains in months

Oil prices declined nearly 3% on Friday as traders booked profits after the previous session's sharp rally, but crude remained on track for its strongest weekly gains in months as geopolitical tensions in the Middle East continued to raise concerns over global energy supplies.

Brent crude futures fell nearly $3, or 2.93%, to $97.72 a barrel after settling above $100 on Thursday for the first time since May. US West Texas Intermediate (WTI) crude futures dropped $2.31, or 2.52%, to $89.87 a barrel.

Despite Friday's retreat, Brent remained on course for a weekly gain of about 10%, while WTI was set to advance 8.9%, extending a rally driven by fears of supply disruptions in key global shipping routes.

Middle East conflict keeps supply concerns elevated

Oil markets remained focused on the escalating conflict involving the United States, Israel and Iran, with hostilities showing little sign of easing.

The US military said it completed a 13th consecutive wave of strikes against Iranian targets early Friday, targeting drone storage sites and coastal surveillance positions aimed at reducing Tehran's ability to threaten commercial shipping through the Strait of Hormuz.

The conflict intensified after Iran-aligned Houthis claimed they had attacked two Saudi oil tankers in the Red Sea, raising concerns that disruption could spread beyond the Strait of Hormuz to the Bab el-Mandeb Strait, another critical route for global energy shipments.

US President Donald Trump also warned of "major military punishment" against Iran and the Houthis following the attacks.

Meanwhile, The New York Times reported that Iran rejected a US-backed ceasefire proposal delivered through Iraqi Prime Minister Ali al-Zaidi, saying Tehran would not accept a temporary agreement that left unresolved control of the Strait of Hormuz.

According to the report, the proposal was the only ceasefire offer currently under consideration.

"The most obvious impact of the escalation could be seen in energy prices," analysts at Deutsche Bank said in a note.

Shipping data offers mixed picture

Despite heightened geopolitical risks, shipping activity suggested that key maritime routes remain partially operational.

Preliminary data from Kpler showed vessel traffic through the Strait of Hormuz remained steady at three daily transits over the past three days, with two additional vessels entering the Gulf on Thursday.

Activity through the Bab el-Mandeb Strait also increased, with 32 commodity vessel crossings recorded on July 23, compared with 26 the previous day.

"In the right seas, ships are still moving... so it's not a complete blockade as some might have feared," said Giovanni Staunovo, a UBS analyst.

However, analysts warned that prolonged disruptions could significantly lift crude prices.

Analysts at JPMorgan said in a note that "each additional month of disruption to oil supply would add around $7 to $8 a barrel to Brent," potentially pushing monthly average prices to about $114 per barrel if disruptions persist for three months.

Additional supply risks remain in focus

Beyond the Middle East, traders continued monitoring supply risks from Eastern Europe.

Russia said its forces struck infrastructure at three Ukrainian ports overnight, including loading and unloading facilities and fuel reserves used to support Ukraine's military.

Separately, Kazakhstan's energy ministry said oil companies had temporarily reduced production after suspected Ukrainian drone attacks forced the country's primary Black Sea oil export terminal to close.