Rate hikes are anticipated - along with demand reduction: File Image/Pixabay

Despite an escalation of hostilities between the U.S. and Iran and the latter attacking other Gulf nations all week, Brent on Friday fell 3.9 percent to $96.78 per barrel.

West Texas Intermediate fell 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 was referring to U.S. president Donald Trump ramping up his global trade war with a fresh round of tariffs on dozens of nations – which impact nearly all U.S. imports; pundits worry that this, combined with rising energy prices, could exacerbate inflation, which in turn could negatively impact oil demand.

The U.S. Federal Reserve will meet later this month, with expectations being it will enact one of at least several rate increases said to be in the works for the remainder of the year.

While inflation was seen as a growing influence on investors, oil supply remained a pressing analytical concern: ING wrote in a research note that if oil reaches $120 per barrel, pressure will be on Trump to bring Tehran back to the bargaining table and find some way to end the conflict.

ING also noted that although Iran wants oil prices to climb “as high as possible,” the bigger problem is how long the Islamic republic can endure loss of revenue caused by the U.S. blockade of oil shipments. 

As for the element driving the price increases, data from Kpler showed that only six ships passed through the Strait of Hormuz on Thursday, the lowest level since May.

Meanwhile, Iran-backed Houthis attacking tankers in the Red Sea this week inspired a rerouting of Saudi Arabia shipments around Africa; however, traffic at the Bab el-Mandeb Strait was relatively high despite Houthi meddling and threats of a blockade – both of which Trump warned would end in severe military repercussions if pursued further.

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