Crude oil sank to pre-war levels on Wednesday, with West Texas Intermediate dropping below $70 a barrel and Brent, the international benchmark, below $74 — the lowest levels since late February, before the conflict that closed the Strait of Hormuz began. The slide, a fourth straight session of declines, has nearly wiped out the entire war-risk premium that drove Brent above $120 at the height of the crisis, a roughly 40% collapse from the wartime peak.
The driver is a supply outlook that improves by the day. Growing confidence in a lasting U.S.-Iran agreement has encouraged more tankers to transit the Strait of Hormuz with their tracking signals turned on, following safety guarantees from the International Maritime Organization. The International Energy Agency estimates the United Arab Emirates is now exporting oil at nearly 85% of pre-war levels, having sold roughly 60 million barrels from the Persian Gulf recently. Buyers face a surge of crude offers from the Middle East and other exporting regions, including West Africa.
The structural signal is unmistakable. Brent’s prompt spread — the gap between the two nearest contracts and a closely watched gauge of near-term tightness — shifted into bearish contango this week for the first time since the conflict began. Contango, in which prompt barrels trade at a discount to later months, indicates the market now sees near-term supply as ample rather than scarce, a complete inversion of the war-driven backwardation that prevailed for months.
A temporary U.S. waiver permitting purchases of already-loaded Iranian oil is expected to add still more supply, reinforcing the bearish tone. The collapse has been swift: analysts who weeks ago debated how high the war premium could push prices are now debating how quickly a glut could form, with OPEC pushing back on forecasts of a near-term demand peak even as the IEA flags a possible 2027 surplus.
Not every signal points lower. The EIA reported that U.S. crude inventories have plunged to their lowest since 1984, with stockpiles at the Cushing, Oklahoma delivery hub dipping toward critical minimum operating levels after months of record U.S. petroleum exports during the Hormuz disruption. That domestic tightness is a genuine counterweight that could slow the decline or amplify volatility, even as the global picture loosens.
There is also a live geopolitical wrinkle: Iran signaled a renewed closure of the strait over the weekend, and maritime-intelligence data showed transits dropping sharply for a session before recovering. The conflicting messaging from Tehran and Washington has left the chokepoint in a confusing half-open, half-closed state. For now, though, the dominant force is the return of Gulf barrels, and the market is pricing the best-case path toward normalization.
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