Crude oil traded near $83 a barrel on Friday as Ukrainian strikes on Russian energy infrastructure threatened to tighten global supply, while a revenue-sharing deal between Iran and Oman over the Strait of Hormuz offered a fragile path toward easing Middle East disruptions.
West Texas Intermediate stood at $82.94, down 0.70% on the day but still up 29.6% year-over-year. Brent crude fell to $88.04, down 0.55%. Both benchmarks had gained ground earlier in the week as Vladimir Putin declared that peace talks with Ukraine had “yielded no results” and Russia was preparing to intensify the war.
The shift in market focus from the Middle East to Eastern Europe marked a notable change in the oil narrative. For months, the closure of the Strait of Hormuz dominated crude pricing. Now, with signs of diplomatic progress in the Gulf region, traders are turning their attention to Russian export capacity under sustained Ukrainian attack.
Ukrainian Strikes Cripple Russian Exports
Ukraine’s campaign against Russian refineries and ports has become a major supply-side factor. The country’s drone strikes have damaged facilities responsible for a significant share of Russia’s refining capacity, disrupting both domestic fuel availability and export volumes.
Russian crude exports have come under pressure as pipeline and port infrastructure sustains repeated hits. The country remains the world’s second-largest crude exporter, and any sustained reduction in its outbound shipments ripples through global markets. The IEA’s August Oil Market Report estimated that global oil supply remained 6.3 million barrels per day below year-ago levels in July, with 8.3 million barrels per day of Gulf output still shut in from the Hormuz closure.
The conflict’s impact extends beyond crude. Russian fuel exports, including diesel and gasoline, have also been disrupted, tightening product markets that were already strained. Refining margins in Europe hit record highs in July as diesel, jet fuel, and gasoline cracks surged amid supply shortfalls.
Gulf Diplomacy Offers a Counterweight
On the other side of the equation, diplomatic activity in the Gulf region has raised hopes for an eventual reopening of the Strait of Hormuz. Iran’s military announced a revenue-sharing agreement with Oman over the strategic waterway, though Tehran stressed that the arrangement does not guarantee an immediate reopening.
The IEA’s August report noted that Gulf oil production rose by 2.5 million barrels per day in July to 23.9 million, still well below pre-war levels. Regional exports briefly peaked at 20 million barrels per day at the start of July but dropped sharply to around 12 million later in the month after the strait was effectively closed again.
The Trump administration told mediators that it has no interest in returning to the terms of a preliminary deal with Iran reached in June, which later collapsed. That stance leaves the diplomatic path forward uncertain and dependent on new negotiations.
Supply-Demand Outlook Remains Challenging
The IEA forecast that world oil demand will decline by 1.6 million barrels per day in 2026, a deeper contraction than previously estimated. The closure of the Hormuz strait and elevated fuel prices continue to weigh on consumption. Demand is expected to contract by 4.9 million barrels per day in the second quarter and 2.8 million in the third, before returning to growth of 580,000 barrels per day in the fourth quarter.
On the supply side, global output is now forecast to fall by 4.3 million barrels per day in 2026 to 102 million. Growth of 1.4 million from the Americas only partly offsets losses in the Middle East and Russia. The report warned that previously available inventory buffers are rapidly depleting, raising the urgency of reopening Hormuz.
OPEC+ production data showed significant underperformance against targets. Saudi Arabia pumped 8.24 million barrels per day in July, well below its implied target of 10.35 million. Iraq produced 2.88 million against a target of 4.38 million. Combined OPEC-8 output of 15.81 million barrels per day missed the combined target of 20.39 million.
For traders, the near-term outlook depends on two variables: the trajectory of Ukrainian strikes on Russian infrastructure and the pace of diplomatic progress around Hormuz. A sustained escalation in the Russia-Ukraine conflict could push prices back toward the $90-$100 range that prevailed through much of the spring. Conversely, meaningful progress on reopening the strait would unleash supply that has been locked in Gulf ports for months.
Gold, which has benefited from the geopolitical uncertainty, traded at $4,658 an ounce, near its recent highs. The precious metal has rallied alongside oil throughout the summer, reflecting investors’ desire for safe-haven assets in a period of overlapping crises. With Fed Chair Kevin Warsh delivering his first Jackson Hole keynote on Friday, the oil market also faces macro risks: a hawkish tone from the Fed could strengthen the dollar and weigh on crude prices in the short term, while a dovish signal could provide support.
For now, the balance between Russian supply fears and Gulf diplomatic hope has left crude oscillating in a relatively narrow range, with both sides of the equation offering enough uncertainty to keep volatility elevated through the coming weeks.
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