Oil prices crashed more than 4% in early Friday trading, with Brent crude falling 4.34% to $86.36 and WTI dropping 4.47% to $83.88. The sharp decline extends losses from Thursday, triggered by President Donald Trump's decision to call off a military strike on Iran amid claims a deal had been reached.
Both benchmarks are heading toward three-month lows as optimism around a potential US-Iran peace deal reshapes supply-risk calculations. The market is now pricing in the possibility that Iranian crude exports, which have been constrained by sanctions, could return to global markets if a diplomatic resolution is achieved.
Thursday's reversal of military posture represents one of the most concrete signals yet that Washington and Tehran are open to negotiation. Earlier in the week, prices had been elevated on fears of supply disruption in the Strait of Hormuz, a critical chokepoint through which about 20% of the world's oil passes.
Traders are now watching for any official confirmation of talks or a framework agreement. A diplomatic breakthrough could accelerate the unwinding of risk premia baked into prices over the past month, potentially adding several hundred thousand barrels per day to global supply.
However, the situation remains fluid. Analysts caution that previous rounds of US-Iran tensions have seen similar rallies followed by sharp reversals if negotiations falter. Any failure to make tangible progress could send prices spiking again, leaving markets exposed to whipsaw moves in the days ahead.