Meanwhile, analysts say oil’s rally is "mostly mood and fear driven": File Image/Pixabay

As oil on Friday headed towards a 6 percent weekly gain but stubbornly maintained its daily downward trajectory despite military strikes between the U.S. and Iran showing no sign of letting up, all eyes were on record high diesel prices.

On Friday, the American Automobile Association reported that U.S. diesel prices at the pump reached an all-time high of $5.85 per gallon compared with an average of $3.71 a year ago.

Claudio Galimberti, chief economist at Rystad Energy, explained, "All sectors of the economy are affected by diesel; this is one of the reasons why the government bond yields in the United States are so high, it's the expectation that inflation will continue to go up."

Exacerbating the situation was the fact that diesel demand will grow in the coming weeks due to the harvest season for farmers and the holiday season for retailers, with the latter depending on more goods to be hauled by trucks for the holidays.

As for oil itself, Norbert Rucker, head of economics and next generation research at Julius Baer, pointed out the irony that “there is no indication that this week’s escalation [of U.S./Iran hostilities] materially impacted exports out of the Middle East and tightened the oil market…Oil’s current rally seems mostly mood and fear driven."

Rucker went on to note that the continuing war was awakening a risk premium embedded in prices.

As of 1538 GMT on Friday, Brent was down 23 cents at $95.29 per ‌barrel, and West Texas Intermediate declined 54 cents at $90.76.

In other oil news on Friday, the Organization of the Petroleum Exporting Countries (OPEC) received a slap on the face from Igor Sechin, chief executive of Russia’s Rosneft, who told delegates at an economic forum that China, not OPEC, calls the shots in oil markets.

He said, “China took the initiative out from OPEC this year and without joining any cartels, it has managed to stabilize the global market by slashing its crude oil imports by about 5.5 million barrels per day [bpd].

“China has successfully turned from a major consumer and importer into an active market leader.”

Also on Friday, Iranian oil minister Mohsen Paknejad told media that despite the U.S. blockade against his country, Iran moved a lot of oil out of the Persian Gulf during the brief three-week period in which the blockade was lifted between mid-June and mid-July.

He added, “We are pursuing various solutions and different measures so that we can reach a day when we are able to completely bypass this blockade.”