Oil drops over $1 despite US-Iran conflict as supply increases

Oil prices fell on Friday but remained on course for a monthly gain of about 20%, as increased crude flows through key maritime chokepoints eased supply concerns despite little progress in US-Iran negotiations.

Brent crude futures dropped $1.03, or 1.2%, to $88 a barrel by 0215 GMT, while US West Texas Intermediate (WTI) crude fell $1.50, or 1.8%, to $82.09 a barrel. Even with Friday's decline, both benchmarks were still set to post monthly gains of around 20%.

Daniel Hynes, senior commodity analyst at ANZ, said rising oil supplies through the Strait of Hormuz were offsetting concerns over escalating tensions in the Middle East.

The Strait of Hormuz, through which roughly one-fifth of the world's crude oil and liquefied natural gas passes, has remained a key focus for energy markets since it was largely blockaded following the outbreak of the US-Israel war on Iran on February 28.

Meanwhile, Saudi Arabia is seeking to spearhead a multinational maritime defence coalition to strengthen security in the Bab el-Mandeb Strait, the Red Sea and the Gulf of Aden—critical routes for global energy shipments.

The Saudi Defence Ministry said 14 countries, including Djibouti, Egypt, Pakistan, Sudan and Turkey, have backed the initiative. Iran-aligned Houthi militants in Yemen last week announced a naval blockade targeting Saudi Arabia, threatening Red Sea shipping, an important alternative route to the Strait of Hormuz for the kingdom's oil exports.

Although tanker traffic continues through both the Strait of Hormuz and the Red Sea, heightened security risks have driven up freight charges and insurance premiums, keeping a significant geopolitical risk premium embedded in oil prices, said Priyanka Sachdeva, an analyst at Phillip Nova.

"While prices have retreated from recent highs, the broader outlook for oil remains supportive," Sachdeva said.