Despite an escalation of hostilities between the United States and Iran, with the latter attacking other Gulf nations throughout the week, oil prices declined on Friday. Brent crude fell 3.9 percent to $96.78 per barrel, while West Texas Intermediate dropped 3.1 percent to $89.31 per barrel.

Adam Ludwick, director of asset allocation at NEI Investments, said markets were experiencing a bifurcation heavily influenced by the re-emergence of inflation risks. "This is obviously due to the new tariff announcements that were mentioned earlier in the week and obviously higher energy prices; we've seen oil come all the way back up to near US $100 per barrel," Ludwick said.

Ludwick was referring to U.S. President Donald Trump ramping up his global trade war with a fresh round of tariffs on dozens of nations, impacting nearly all U.S. imports. Analysts have expressed concern that the combination of these tariffs and rising energy costs could exacerbate inflation, which in turn may negatively affect oil demand.

The U.S. Federal Reserve is scheduled to meet later this month, with widespread expectations that it will enact the first of at least several rate increases anticipated for the remainder of the year. That policy backdrop helps explain why traders were weighing potential supply shocks against the possibility that tighter financial conditions and higher consumer prices could restrain fuel consumption.

While inflation has become a growing influence on investor sentiment, oil supply disruptions remained a pressing concern. ING wrote in a research note that if oil reaches $120 per barrel, pressure will mount on Trump to bring Tehran back to the negotiating table and find a way to end the conflict. ING also noted that although Iran wants oil prices to climb "as high as possible," the larger question is how long the Islamic Republic can endure the loss of revenue caused by the U.S. blockade of its oil shipments.

Data from Kpler showed that only six vessels passed through the Strait of Hormuz on Thursday, the lowest level since May. The waterway is a critical transit route for Gulf energy exports, making any decline in traffic closely watched by oil and shipping markets. Meanwhile, Iran-backed Houthi attacks on tankers in the Red Sea this week prompted a rerouting of Saudi Arabian shipments around Africa. However, traffic through the Bab el-Mandeb Strait remained relatively high despite Houthi interference and threats of a blockade — both of which Trump warned would result in severe military repercussions if pursued further.

Adding to the supply disruption, Kazakhstan reported that it had reduced oil production after drone attacks forced the closure of its main export terminal on the Black Sea for CPC Blend.

Source: Ship & Bunker