WTI crude falls to $75 as Iran deal set to unlock supply flood

Oil markets are pricing a supply deluge before a single barrel crosses the Strait of Hormuz.

WTI crude slid 1.7% to near $75 a barrel, extending a five-session rout as traders price the imminent reopening of the Strait of Hormuz after the U.S. and Iran signed a 60-day ceasefire memorandum. Brent crude traded near $78, down roughly 40% from its conflict peak above $113 in March.

"Iran has more than 100 million barrels of oil in storage and on tankers that could be easily sold," said Brett Erickson, managing principal at Obsidian Risk Advisors, a sanctions consultancy. More than 60 million of those barrels sit outside the U.S. naval blockade, he added.

The U.S. will allow Iran to immediately resume oil exports once the agreement is formally signed Friday in Switzerland, covering banking, transport and insurance services needed to facilitate sales, a senior U.S. official said. At least five Iranian-flagged vessels have already crossed the blockade line in the Gulf of Oman since Sunday's announcement, according to MarineTraffic.com tracking data.

The 60-day framework grants Iran immediate economic relief in exchange for curbing enrichment and safeguarding Hormuz shipping — but President Donald Trump warned the U.S. would resume bombing "if they don't behave," leaving the supply revival conditional on fragile diplomacy. Vice President JD Vance said the full text of the memorandum would be released Friday "at the latest."

The Supply Wave Building Behind the Strait

The Strait of Hormuz handles roughly 20 percent of global crude and liquefied natural gas flows, and shipping traffic through the chokepoint dropped more than 95 percent after the conflict erupted on Feb. 28. The reopening restores the single largest oil transit route on the planet, allowing not just Iranian barrels but broader Gulf output to flow freely again.

Beyond the structural reopening, more than 100 oil-laden tankers currently stuck in the Gulf represent a pent-up supply wall. These vessels, loaded with crude but unable to transit the closed Strait, would release their cargoes the moment the chokepoint clears — a concentrated burst of supply on top of resumed Iranian production. Tanker operators are already repositioning vessels toward the region in anticipation.

The supply picture extends beyond Iran. OPEC production fell to its lowest level since June 2020 during the disruption, and the unwinding of those cuts as the conflict resolves adds further barrels. The UAE, which exited the cartel during the conflict, is ramping independent production outside the OPEC+ coordination framework — a structural shift that compounds the supply wave.

The Demand Side and the Fed Read-Through

The one counterweight to the bearish supply story comes from U.S. inventories. Industry data showed U.S. crude stockpiles declined by 8.3 million barrels last week, a substantial draw suggesting demand is holding up even as the supply outlook turns bearish. The International Energy Agency has cautioned, however, that the conflict may cause a larger-than-expected demand hit, with the energy-price spike and economic disruption during the war dampening consumption.

Oil's collapse also carries a disinflationary consequence for the broader macro picture. The conflict's energy spike drove U.S. CPI to 4.2 percent year over year, with energy prices up 23.5 percent over the trailing year. Crude falling 40 percent from its peak reverses that energy contribution in real time, giving the Federal Reserve a data point for a less-hawkish posture as it publishes its dot plot this week.

The last time oil prices collapsed this rapidly was during the Covid demand shock of 2020, when WTI briefly turned negative. The current unwind is driven by supply returning rather than demand vanishing — a fundamentally different dynamic that makes the speed and durability of the Strait's reopening the single variable that determines whether crude stabilizes near $70 or snaps back on a contested truce.

This article is for informational purposes only and does not constitute investment advice.