By: Economy Middle East

Oil prices declined on Friday, extending the previous session’s losses after U.S. President Donald Trump called off plans for military strikes on Iran, easing concerns over a wider escalation in tensions following reciprocal attacks earlier this week.

As of 4:05 GMT, Brent crude futures dropped $1.51, or 1.67 percent, to $88.87 a barrel, while U.S. West Texas Intermediate (WTI) crude fell $1.37, or 1.56 percent, to $86.34 a barrel. For the week, Brent was down 4.76 percent, while WTI had lost 4.8 percent.

Trump says peace deal in progress

Oil prices fell as Trump, who had previously threatened to strike Iran, canceled planned military action on Thursday, saying talks with Tehran had made progress.

Market sentiment improved after Trump said talks with Iran had advanced to the highest levels of leadership and that an agreement was close, prompting him to abandon plans for military strikes.

He added that Washington and Tehran could sign a peace deal as early as this weekend, potentially paving the way for the reopening of the Strait of Hormuz to commercial shipping.

The remarks marked a sharp reversal from earlier threats of military action that had fueled concerns over potential disruptions to oil supplies from the Gulf.

U.S. crude stockpiles fall for seventh consecutive week

On the other hand, Iran said it had not approved the text of any proposed agreement. It also reiterated its closure of the Strait of Hormuz, warning that any vessel attempting to transit the strategic waterway could come under attack.

The months-long disruption of the strait — a key route for around one-fifth of global oil and liquefied natural gas trade — has continued to support elevated oil prices.

Despite the tensions, the U.S. military said commercial shipping traffic was still moving through the waterway.

Capping the decline in oil prices, data released by the U.S. government this week showed crude inventories dropped by 7.2 million barrels, far more than market expectations, pointing to strong demand in the world’s largest oil-consuming nation. The decline also marked the seventh straight weekly drawdown in U.S. crude stockpiles.

Despite Friday’s losses, oil prices remained on track for a weekly decline after a sharp selloff on Thursday more than offset gains earlier in the week, when concerns over escalating tensions between Washington and Tehran had pushed crude prices higher.