• WTI falls to $69.70, its lowest level since the start of the Israel-Iran conflict in early March.
• Rising traffic through the Strait of Hormuz fuels expectations of a gradual recovery in Gulf oil flows.
• Markets are also pricing in a potential increase in Iranian supply following the temporary easing of US sanctions.

West Texas Intermediate (WTI) US Oil extends its sharp decline on Wednesday, trading around $69.70, down 4.40% on the day at the time of writing and hitting its lowest level since March 2. The US Crude benchmark has now erased much of the geopolitical risk premium built up since the outbreak of the Israel-Iran war and is moving closer to pre-conflict levels around $67.

Selling pressure intensified as concerns about prolonged disruptions to Gulf energy exports continued to fade. Maritime tracking data showed an increase in the number of vessels crossing the Strait of Hormuz, signaling a gradual normalization of trade flows, although traffic remains below levels seen before the conflict.

Meanwhile, diplomatic efforts regarding the future of the Strait of Hormuz continue to advance. Qatar and Oman have launched an initiative aimed at bringing together Iran, Gulf states and Iraq to establish a long-term framework for managing the strategic waterway. Gulf countries are expected to defend the principle of free transit, while Tehran may propose fees related to security, navigation and environmental protection.

Bearish sentiment was also reinforced by the US decision to grant a temporary 60-day waiver allowing international buyers and American refiners to legally resume purchases of Iranian Crude Oil. The move has boosted expectations of higher global Oil supply in the coming weeks.

However, several analysts argue that the sell-off may be overdone. Analysts at ING note that Oil volumes currently moving through the Strait of Hormuz remain well below pre-conflict levels, adding that the Oil market continues to show signs of tightening despite improving logistical conditions. Meanwhile, analysts at TD Securities point out that floating Crude inventories in the Gulf have declined sharply in recent weeks, which could limit the ability to sustain current flow rates over the longer term.

Investors are also monitoring developments in negotiations between Washington and Tehran over nuclear inspections. US President Donald Trump stated that Iran had agreed to allow inspectors from the International Atomic Energy Agency (IAEA) to return, while Iranian officials said that no timetable had yet been established, leaving uncertainty over the durability of the ceasefire agreement.