Oil retreats from 4-month high on possible Hormuz deal

Oil prices fell sharply on Friday after reports emerged that Middle Eastern foreign ministers are exploring a temporary deal with Iran to restore commercial shipping through the Strait of Hormuz, offering a rare moment of relief in a week dominated by surging energy costs and inflation fears.

Brent crude hit a four-month high of $109.97 a barrel earlier in the session before sliding roughly 3.3% to around $104, according to Reuters. West Texas Intermediate crude dropped below $100 a barrel. Despite the pullback, both benchmarks remained on track for a weekly gain of more than 8%, with U.S. diesel prices hitting a record high.theglobeandmail+1

Hormuz Diplomacy Sparks Sell-Off

The Financial Times London Stock Exchange reported that Oman is spearheading a meeting of top Gulf states and Iran over a deal to resume commercial shipping through the Strait of Hormuz, with talks scheduled for Monday in the Omani city of Salalah. The report triggered a swift retreat in crude prices, reflecting hopes for a de-escalation in the broader U.S.-Iran conflict that has disrupted energy supply flows since late February.investing

"Some headlines of possible new talks in the Middle East are weighing moderately on oil prices today," said UBS energy analyst Giovanni Staunovo, adding that he still sees "near-term risks to the upside for oil prices" along with high volatility.theglobeandmail

Fighting between the U.S. and Iran in recent days has been among the most intense since the conflict began, and President Donald Trump said the conflict could extend beyond the November midterm elections.investing

Inflation Data Fuels Rate Hike Bets

The easing in oil prices helped global equity markets stabilize after four straight days of losses. The S&P 500 climbed 0.94% in early trading, while the Dow Jones Industrial Average rose 0.96% and the Nasdaq Composite gained 1.02%.investing

However, U.S. consumer price data released Friday showed inflation accelerating, with the CPI rising 0.4% in August after a 0.1% gain in July. Traders quickly raised bets on a Federal Reserve rate hike at next week's meeting, with CME Group's ↘ 0.45% FedWatch tool showing an 85% probability of a quarter-point increase, up from about 67% before the data.investing

"Today's inflation data have done nothing to change our view that the Fed is behind the curve," said David Rees, head of global economics at Schroders.investing

Broader Tightening Ahead

The inflation picture extends well beyond the United States. Analysts at JPMorgan ↗ 2.27% now expect eight of the nine developed-market central banks to raise interest rates by year-end, warning that "risks to our forecasts lean in the direction of more action in the face of resilient growth, sticky core inflation, and commodity price pressures". The European Central Bank raised borrowing costs on Thursday for the second time this year, with some officials eyeing another increase as soon as October.theglobeandmail+1

The benchmark 10-year Treasury yield briefly touched 4.99%, its highest in nearly three years, before easing to 4.94% as oil prices retreated. Gold recovered 1.8% on Friday after dropping nearly 2% in the prior session, though it remained well below its 200-day moving average.investing+1