Oil prices ease but are set for 10% weekly gain as Trump mulls 'bigger than ever' attack on Iran

Oil prices dropped by around 4% early on Friday, but remained on track for a weekly jump of 10% as the U.S.-Iran war continued to escalate.

At 5:20 a.m. ET, global benchmark Brent crude futures for July delivery were 4% lower at $96.72 a barrel and heading toward a weekly gain of 9.7%.

U.S. West Texas Intermediate crude futures were also 3.4% lower, trading at $89.06 per barrel but up 8% for the week.

Crude oil futures

Overnight, the U.S. Central Command completed its 13th consecutive night of strikes on Iran, targeting military command centers, drone storage facilities, communication networks, coastal surveillance sites, and maritime capabilities.

Centcom said the strikes were intended to "further diminish the threat Iran poses to civilian mariners and commercial vessels transiting the Strait of Hormuz."

"The international waterway remains open for transit despite recent attacks from Iran's Islamic Revolutionary Guard Corps. Commercial vessels continue to freely navigate the strait with U.S. military support," the military unit said in a statement.

"More than 50,000 U.S. service members are currently operating across the Middle East."

U.S. President Donald Trump told Axios on Thursday that he was mulling a "massive attack" on Iran after the conflict in the Middle East extended to a new battleground in the Red Sea. The president said the proposed strikes would be bigger than anything seen in the war so far, and that Iran has not "received enough pain yet."

"I am considering a massive attack. Bigger than ever before. I am close to making a decision. We are all set for it," he said in the interview.

It came after Trump said he would hold Iran responsible for further attacks by Yemen's Tehran-backed Houthis, after the militant group claimed to have struck two Saudi Arabian oil tankers in the Red Sea.

"If they do this again, the U.S. will hold Iran responsible, in that the Houthis are a Surrogate and/or Proxy of Iran, and major military punishment will be inflicted upon Iran and, of course, the Houthis, themselves," he said in a Truth Social post.

Iran's Revolutionary Guard said Thursday that it had attacked U.S. military facilities at an American base in Jordan, according to state media.

Speaking to reporters on Thursday, U.S. Secretary of State Marco Rubio labeled Trump's approach to the Iran war as "a head for an eye."

In a Friday morning note, Daniela Hathorn, senior market analyst at capital.com, said growing instability around key shipping routes had rebuilt a "sizeable geopolitical risk premium" into oil markets.

"Investor sentiment has been dampened by continued disruption in the Red Sea, where attacks on commercial vessels have compounded concerns over global trade and energy security," she said. "Combined with tensions around the Strait of Hormuz, the developments have reinforced the view that geopolitical risks are unlikely to fade anytime soon, keeping energy markets tight and inflation risks elevated."

Meanwhile, Giovanni Staunovo, a strategist at UBS Global Wealth Management, said in a Thursday note that markets may be overestimating the oil market's recovery from the conflict.  

"We continue to expect the production recovery process in the Middle East to be slower than the market anticipates, as it requires an increase in inbound vessels," he said. "With the conflict resuming, those flows remain depressed. This should keep the oil market tight and prices supported."

UBS sees Brent crude falling to $85 a barrel by the end of the year.