WTI Crude Plunges 11% as Hormuz Reopening Eases Supply Fears

Crude oil prices plummeted Friday after Iran reopened the Strait of Hormuz to shipping and hopes grew for a long-term US-Iran ceasefire, erasing more than five weeks of gains for both major benchmarks.

"The market is currently pricing in the end of the war and the end of the strait closure," Arne Lohmann Rasmussen, chief analyst at Global Risk Management, said. "However, we note that it is only open for ships sailing along the Iranian coastline, so it may not be a full opening yet."

West Texas Intermediate crude futures for May delivery settled down 11.45% at $83.85 a barrel, while June Brent crude fell 9.07% to close at $90.38. The sell-off also hit European natural gas, with Dutch TTF futures dropping 7.7%.

The core driver for the collapse is the rapid removal of a "war premium" that had been baked into prices on fears of a supply disruption through the critical waterway, which handles about a fifth of the world's oil.

From Supply Panic to Easing Sanctions

The market's focus is shifting from the risk of a supply shock to the potential for increased supply. An open strait ensures Middle Eastern exports can flow normally, but a potential US-Iran deal could also lead to a loosening of sanctions, allowing more Iranian crude to enter the global market.

According to former US President Donald Trump, most key terms of a peace deal have been settled, with an agreement possible within "a day or two." This prospect has analysts unwinding the extreme supply disruption scenarios that had recently pushed prices higher. Morningstar analysts noted that if tensions fully cool, oil prices could return to "pre-war levels," as the recent rally was driven more by risk premiums than a fundamental supply deficit.

Fragile Peace Keeps Volatility High

Despite the sharp sell-off, analysts caution that the situation remains fluid. The reopening of the strait is a policy signal, and its practical implementation depends on factors like shipping insurance and risk assessments from vessel operators.

"Friday's sharp selloff in the oil market may be a bit overdone, as the details of a final and lasting ceasefire agreement between the US and Iran have not been fully finalized," said Tyler Richey, an editor at Sevens Report Technicals. He believes the negotiating situation is likely "more fragile" than the price action suggests.

For the week, WTI lost 13.17%, bringing its two-week decline to nearly 25%—the largest such drop since April 2020. With geopolitical risk being repriced, the market's attention now returns to fundamental drivers, including OPEC+ policy and global demand uncertainty, likely keeping oil prices in a highly volatile state.

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