Oil prices drop about 3% as US, Iran explore path out of war

Oil prices fell about 3% on Friday, on mounting hopes for a truce between the US and Iran, even as traders worried that increasing attacks against Saudi Arabia by Houthi fighters could disrupt supply from the Middle Eastern producer. 

Brent futures rose $2.96, or 2.8%, at $103.64 a barrel by 12:12 p.m. EDT (1612 GMT). West Texas Intermediate (WTI) crude fell $2.86, or 3.0%, to $91.75.

That put Brent down about 1% for the week and WTI down about 9%.

US and Iranian negotiators in New York are exploring a phased path out of war that would involve Tehran reopening the Strait of Hormuz and Washington lifting its economic blockade of Iran, sources close to the talks said.

In the Middle East, however, Saudi, Turkish and Pakistani military chiefs are to discuss help for Saudi Arabia as it faces attacks by Yemen's Iran-aligned Houthis.

"Diplomatic hopes are essentially helping oil prices weather the latest military strikes in the Middle East, with crude trading moderately softer despite the attacks," said Tim Waterer, chief analyst at KCM Trade.

The Houthis have launched strikes on the Saudi-backed government in Yemen and repeatedly fired into Saudi Arabia, disrupting oil flows from the world's largest energy exporter, as part of a wider Middle East war that began with US and Israeli strikes on Iran on February 28.