Oil prices extended their decline on Wednesday, falling for a third consecutive session as improving U.S.-Iran relations reduced concerns about prolonged disruptions to Middle East energy supplies.
Signs that shipping activity through the Strait of Hormuz is gradually recovering also placed downward pressure on crude oil prices.
WTI Crude Falls Below $70
At 09:43 ET, September Brent crude futures fell 4% to $73.71 per barrel.
Meanwhile, August West Texas Intermediate crude futures declined 4.4% to $69.98 per barrel. WTI crude fell below the important $70 level for the first time since March 2.
Both major oil benchmarks had already settled near four-month lows during the previous trading session.
Strait of Hormuz Shipping Activity Recovers
Oil market sentiment weakened as evidence suggested that shipping traffic through the Strait of Hormuz was slowly returning to normal.
The strategic waterway had faced significant disruption during several months of conflict. It remains one of the world’s most important routes for crude oil and liquefied natural gas exports.
Reports showed that several supertankers previously stranded in the Gulf had successfully left the region while carrying crude oil cargoes.
A growing number of liquefied natural gas vessels connected to Qatar have also resumed their journeys through the strait.
Traders viewed these developments as an early indication that regional energy flows are beginning to recover.
U.S.-Iran Roadmap Eases Supply Concerns
Negotiators from the United States and Iran have reportedly agreed to a 60-day roadmap intended to support negotiations toward a broader settlement.
Washington has also issued a temporary sanctions waiver that permits certain Iranian oil exports to resume through August.
These measures have increased expectations that additional Iranian crude supplies could return to the global oil market.
The prospect of improving supply conditions has reduced the geopolitical risk premium that had previously supported oil prices.
Persian Gulf Oil Flows Remain Below Normal
ING analysts estimated that approximately 6 million to 7 million barrels of oil per day had recently passed through the Strait of Hormuz.
This remains well below the pre-war level of approximately 20 million barrels per day.
However, Saudi Arabia and the United Arab Emirates can redirect part of their oil exports through pipelines that bypass the strait.
According to ING, flows through Hormuz may only need to recover to around 14 million barrels per day for total Persian Gulf oil supplies to return to pre-war levels.
ING Believes Oil Sell-Off May Be Excessive
Despite the sharp decline in crude oil prices, ING analysts argued that the market reaction may have gone too far.
The bank believes global oil market conditions are still tightening, even as traders price in a relatively fast recovery in Persian Gulf supplies.
Current price movements suggest that investors expect regional crude exports to normalize more quickly than previously anticipated.
API Reports Smaller U.S. Inventory Draw
Investors also examined preliminary U.S. oil inventory data from the American Petroleum Institute.
The API reported that U.S. crude oil inventories fell by 765,000 barrels during the week ending June 19.
The reduction was smaller than analysts had expected, adding further pressure to oil prices.
Crude inventories at Cushing, Oklahoma, the delivery hub for WTI futures, declined by approximately 1 million barrels.
Fuel Inventories Increase
Gasoline inventories rose by 1.2 million barrels during the week, while distillate fuel stocks increased by approximately 1.4 million barrels.
Rising fuel inventories can indicate that supply is growing faster than demand, particularly during periods when seasonal consumption is expected to increase.
Traders are now waiting for official inventory data from the U.S. Energy Information Administration.
The EIA figures are expected to confirm whether the smaller crude inventory draw and increases in fuel stocks reported by the API accurately reflect current U.S. market conditions.
