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Update: WTI Oil Falls 5.8% on Hopes for a Quick Return of Persian Gulf Supply Following the Iran-U.S. Truce

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West Texas Intermediate (WTI) fell for a fourth-straight session on Tuesday, closing down 5.8% on expectations supply is on the rise as the market anticipates the weekend truce between Iran and the United States will reopen the Strait of Hormuz and free tankers trapped in the Persian Gulf since the start of the conflict.

WTI crude oil for July delivery closed down US$4.70 to settle at US$76.05 per barrel, the lowest since March 4, while August Brent oil was last seen down $4.46 to US$78.71.

Oil is down 17% in the past four sessions as the market expects a return of Persian Gulf supply as the U.S and Iran reached a truce in the war that produced the largest-ever energy supply shock, shutting in much of the 20% of daily oil demand supplied by countries in the region.

While terms of the agreement have not yet been disclosed, ships are expected to soon begin openly transiting the Strait that has been blocked since the Feb. 28 start to the war, boosting supply to the mostly Asian markets that depend on Gulf exports. Indeed, the Wall Street Journal reported the United States is already allowing Iran to ship oil through the Strait.

However the war has damaged oil infrastructure in Persian Gulf nations following Iranian attacks on its neighbors, while shut-in oilfields could be slow to restart, keeping supply below pre-war levels, even as the market anticipates a quick return of the region's production.

"The (price) reaction highlights how quickly markets have shifted from pricing the largest oil supply disruption in modern history to focusing on recovery. Brent crude, which briefly traded above USD 120 per barrel during the height of the crisis, has fallen back toward the low USD 80s as traders anticipate a return of stranded supply and easing market tightness. Even so, prices remain well above the pre-war USD 60-70 range.," Ole Hansen, head commodity strategy at Saxo Bank, said.

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