Oil prices are falling, but the global energy market is nowhere near calm.

Crude futures slipped on Friday as traders cautiously embraced the possibility of a ceasefire between the United States and Iran. Yet the optimism was tempered by renewed attacks involving Yemen's Iran-aligned Houthis and continuing concerns surrounding Saudi oil infrastructure.

That combination has created an unusually fragile oil market: diplomatic headlines are pushing prices lower at the same time that attacks on critical energy facilities are keeping a substantial geopolitical premium embedded in crude.

Brent crude was down 87 cents, or about 0.82%, at $105.73 a barrel in early Friday trading, while U.S. West Texas Intermediate fell $1.56, or roughly 1.65%, to $93.05. The pullback followed a dramatic rally the previous day, when both benchmarks climbed as much as 5% intraday. Brent eventually settled 3.4% higher, while WTI gained 2.7%.

The contrast tells the story.

Investors want to believe that diplomacy can reopen one of the world's most important energy corridors.

But they have also been reminded, repeatedly, that oil facilities across the region remain vulnerable.

The latest diplomatic optimism centers on discussions between U.S. and Iranian negotiators in New York.

Sources close to the talks told Reuters that negotiators are examining a possible phased pathway out of the conflict. Such a framework could involve Iran reopening the Strait of Hormuz and the United States lifting its economic blockade of Iran.

That would be an enormous development for energy markets.

The Strait of Hormuz is one of the world's most important oil and gas shipping passages. A substantial portion of global energy trade moves through the waterway, making any sustained disruption a threat to supplies far beyond the Middle East itself.

Reuters reported that roughly one-fifth of global oil and gas shipments have been curtailed since the war began in late February, contributing to severe disruptions in international energy flows.

If the strait were fully reopened and shipping returned to more normal levels, the market could begin removing a substantial amount of geopolitical risk from crude prices.

But markets are not there yet.

Iranian President Masoud Pezeshkian said Thursday that the United States must decide whether it wants the war to end, while Tehran continues to review Washington's response to Iranian proposals. At the same time, disagreements over the blockade and navigation rights remain unresolved.

That leaves traders with an uncomfortable reality.

There is a diplomatic path.

There is no confirmed settlement.

And until there is, every new attack can quickly change the price equation.

The latest security concerns came from Yemen.

Saudi Arabia said it intercepted six ballistic missiles launched by Iran-backed Houthi forces, targeting the southern province of Taif and the Yanbu area on the Red Sea. Yanbu matters because Saudi Arabia has been using its western infrastructure as an alternative route for exporting crude when the eastern Gulf route faces heightened risk.

The attacks are therefore significant beyond their military dimension.

They threaten an important piece of Saudi Arabia's energy logistics.

The kingdom has been rebuilding its ability to move crude through its East-West Pipeline toward Yanbu, a Red Sea export hub. Industry sources, satellite imagery and shipping data cited by Reuters indicate that Saudi Arabia is increasing crude pumping through the pipeline, although crude tanker loadings from Yanbu had not yet fully resumed.

That creates a delicate situation.

Saudi Arabia has an alternative route.

But an alternative route only provides protection if the route and its export terminals remain secure.

The latest Houthi attacks serve as a reminder that even geographic diversification cannot entirely eliminate regional risk.

Tim Waterer, chief market analyst at KCM Trade, said the attacks were a clear reminder that critical oil assets remain exposed.

One of the most interesting features of the current market is the widening difference between Brent and WTI.

Brent has remained significantly more expensive because it is more directly exposed to international shipping and Middle East supply disruptions.

WTI, meanwhile, is linked more closely to the U.S. domestic crude market.

By Friday morning, the Brent-WTI spread had widened to about $12.68 a barrel, its largest gap since May, according to Reuters reporting.

That is an unusually wide differential.

Normally, the two benchmarks move in broadly similar directions.

The widening spread indicates that traders are effectively assigning different risk premiums to the two grades.

Brent is carrying more of the geopolitical risk.

WTI is being influenced more heavily by U.S. domestic supply conditions and concerns over the American refined-products market.

The result is a crude market that is behaving less like one global commodity and more like several connected regional markets.

Oil traders are also watching U.S. diesel.

A potential U.S. restriction on diesel exports briefly became a source of major market uncertainty. Although a White House official denied that the administration was preparing a 90-day export ban, the possibility helped contribute to the unusual divergence between Brent and WTI.

The underlying issue is that U.S. distillate inventories remain relatively tight.

Reuters reported that U.S. distillate stocks fell by 428,000 barrels last week to 107.4 million barrels.

That matters because diesel is not simply another petroleum product.

It is central to freight transportation, agriculture, construction and industrial activity.

A shortage of crude is not required for diesel prices to rise. Refinery capacity, inventories, exports and regional demand can all influence the price of finished fuels.

That is why crude traders are watching the diesel market alongside the geopolitical headlines.

There is an important counterweight to the geopolitical story.

U.S. crude inventories increased by 3 million barrels last week to 426.4 million barrels, according to the Energy Information Administration. That was considerably larger than the decline analysts had expected.

Under ordinary circumstances, a sizable inventory build could weigh heavily on crude prices.

But these are not ordinary circumstances.

A barrel sitting in U.S. storage cannot eliminate the risk associated with an oil tanker facing a disrupted international shipping route.

That is why geopolitics continues to overpower some traditional supply-and-demand indicators.

The oil market is now watching negotiations almost minute by minute.

A credible U.S.-Iran agreement could produce a rapid decline in prices as traders remove the risk premium surrounding the Strait of Hormuz.

Such a move would also potentially ease pressure on global inflation and transportation costs.

But a breakdown in negotiations could produce the opposite effect.

If attacks continue, shipping remains constrained and alternative Saudi export routes face threats, traders could begin pricing a prolonged disruption rather than a temporary shock.

That would keep Brent elevated.

It could also have consequences outside energy markets.

Higher oil prices can feed directly into headline inflation, complicating central-bank decisions just as investors are already wrestling with elevated interest rates and rising bond yields.

In other words, the oil market has become a crucial part of the macroeconomic story.

The latest decline in crude prices is encouraging, but it is not evidence that the energy crisis has ended.

It is evidence that traders are willing to price in the possibility that it might.

That distinction is everything.

For now, Brent remains above $105 a barrel, despite Friday's pullback.

The market is effectively balancing two competing headlines: diplomacy could reopen the path to normal energy flows, while missiles and attacks could close it again.

Until one of those forces decisively wins out, oil is likely to remain one of the world's most volatile markets — capable of falling on a peace headline and exploding higher on a single attack.

The price may be lower today.

The risk premium is still very much alive.