Oil prices fell over $1 on Friday, extending losses from the ‌previous session after U.S. President Donald Trump cancelled plans to strike Iran, reducing fears of an escalation of hostilities following tit-for-tat attacks earlier in the week.

Brent futures fell $1.83 or 2% to $88.55 a barrel at 0410 GMT, while U.S. West Texas Intermediate (WTI) crude dropped $1.60, or 1.8%, ​to $86.11.

Trump, who had threatened to hit Iran "very hard", called off planned strikes on Thursday, saying discussions ​with Iran had progressed and a peace deal that would reopen the Strait of ⁠Hormuz to shipping could be signed as soon as this weekend.

Iran's semi-official Fars news agency reported that ​Tehran had not approved the text of any agreement.

"While this could, of course, be yet another false dawn, the ​market's reaction has been both swift and decisive," said IG market analyst Tony Sycamore.

He added that even as oil prices correct downwards, "as long as the price can hold above support in the low $80s, the risks remain firmly skewed to the upside."

On Thursday, Iran ​announced "the closure" of the Strait of Hormuz, through which vessel traffic was already severely limited, saying it would ​fire on any ship trying to pass through the waterway. The strait normally carries a fifth of global oil and ‌liquefied natural ⁠gas shipments and Tehran's months-long blockade has kept energy prices elevated.

State media reported on Friday that Iranian forces prevented a tanker from transiting the Strait of Hormuz without coordination.

The U.S. military said on social media that commercial ships continued to transit the waterway.

"We would be cautious about assuming that the extension of the ceasefire is a ​done deal. Even if it ​is, it could be ⁠fragile. And clearly, if nuclear talks do not progress, it could very easily fall apart," said ING analysts in a Friday note.

"We believe the market reaches an inflexion ​point in late July if we do not see oil flows resuming before ​then. This is ⁠when inventory levels and seasonally stronger demand push prices significantly higher towards $120-130 per barrel."

The Organisation of the Petroleum Exporting Countries (OPEC) on Thursday lowered its forecast for 2026 world oil demand growth to 970,000 barrels per day (bpd) from a previous 1.17 ⁠million ​bpd, marking its second straight downward revision.

The producer group also said ​consumption would rebound later, raising its demand growth forecast for 2027. It expects 2027 oil demand to rise by 1.73 million bpd, up ​190,000 bpd from its previous forecast.