Oil prices stable as US-Iran peace efforts hold

By Robert Harvey

LONDON, July 3 (Reuters) - Oil prices were steady on Friday and little changed for the week as traders held on to hopes that attempts to secure peace in the Middle East between the United States and Iran would succeed.

Brent futures were up 17 cents, or 0.24%, to $71.97 a barrel at 0932 GMT. West Texas Intermediate was up 2 cents, or 0.03%, at $68.71 a barrel.

For the week, Brent was essentially unchanged, and WTI was down around 0.8%.

Oil prices were under pressure as investors' hopes of a full reopening of the Strait of Hormuz were buoyed by peace talks between the U.S. and Iran, Commerzbank analysts said. 

U.S. markets will be closed on Friday ahead of the U.S. Independence Day holiday on Saturday. 

On Thursday, the two benchmarks hit their lowest levels since before the U.S.-Israeli war on Iran began in late February.

"The U.S.-Iran dealmaking process remains fragile but continues for now, as the question of Strait of Hormuz tolls and administration remains contentious," Citi analysts wrote on Friday. 

"We expect the MOU (memorandum of understanding) to hold, not because trust has suddenly emerged, but because the incentives to break are poor for both sides."

Some shipping has resumed through the Strait of Hormuz, as called for under the initial U.S.-Iranian deal, but uncertainty is high after the two countries exchanged strikes last weekend following an Iranian attack on a cargo ship.

With the prospect of being able to ship more oil, Gulf producers are working to increase output.

Kuwait's oil production rose sharply to 1.65 million barrels per day in June from 580,000 bpd in May, a source familiar with the matter told Reuters on Thursday. 

At least five supertankers carrying a total of 10 million barrels of Saudi oil have exited the Strait of Hormuz and Saudi Aramco has switched to spot pricing from longer-term contracts to speed sales in Asia, according to trade sources and shipping data.

"A sustained recovery in crude prices is more likely to materialise once the oil currently stranded on tankers and held in storage has been absorbed by the market, and if the recovery in production proves insufficient to offset the volumes currently transiting the Strait of Hormuz," said PVM analyst Tamas Varga.  

As the availability of supplies grows, the market structure has turned from backwardation to contango, reflecting decreasing expectation of future shortages.

The spread between front-month Brent and six-month forward turned negative on July 1 for the first time in 2026.

(Reporting by Robert Harvey in London, Sam Li in Beijing and Helen Clark in Perth. Editing by Mark Potter)