Crude oil futures continued their decline in early trading on Tuesday, with West Texas Intermediate hovering near $82.11 per barrel as the market absorbed the implications of a halt in US airstrikes on Iran. The pullback marked a continuation of Monday's sharp selloff, which erased a significant portion of the war-driven gains from the previous week.
September WTI opened at $81.89 and was last seen trading at $82.11, down 0.6% from Monday's close. Meanwhile, Brent crude, which did not trade in the overnight session, closed Monday at $88.36, a steep decline of $8.42 or 8.7% from its prior settlement. WTI fell $6.70 to end at $82.61, its lowest level since July 16.
The reversal came after Washington announced a temporary halt to its air campaign against Iran, signaling a potential shift toward diplomatic negotiations. Markets interpreted the move as increasing the likelihood of a diplomatic resolution, which could eventually reopen the Strait of Hormuz to normal traffic. However, no formal agreement has been reached, and physical oil flows remain severely constrained.
Despite the diplomatic optimism, the data paints a stark picture of ongoing supply disruptions. Over the weekend, fewer than 10 commodity vessels passed through the Strait of Hormuz daily, representing roughly 15% of pre-war volumes, according to a Reuters-cited analyst estimate. Typically, around 20 million barrels of crude, condensates, and products traverse the strait each day.
"The market is forever seeking good news from an arena that really is not providing any," said PVM analyst John Evans in a Reuters report. He cautioned that the halt in strikes does not guarantee a swift return to normal oil flows.
Beyond the Gulf, supply issues persist. Kazakhstan's oil output dropped by more than half after its primary Black Sea export hub was shut down due to drone strikes. Exports have since partially recovered, helping to contain the immediate impact.
On the inventory front, U.S. commercial crude stockpiles rose by 2 million barrels last week to 411.7 million barrels, according to the Energy Information Administration. While still about 6% below the five-year seasonal average, the build offered limited support to prices. Refinery utilization stood at 96.1% of capacity.
The EIA projects global inventories will decline by 2.2 million barrels per day in the third quarter, but rise by 2.7 million barrels per day in the fourth quarter. Its forecast for Brent crude averages $70 per barrel in Q4, a level far below Monday's closing price of $88.36, highlighting the ongoing risk premium embedded in current prices.
Traders are now focused on upcoming inventory data. The American Petroleum Institute will release its initial estimate on Tuesday, followed by the EIA's official report on Wednesday at 10:30 a.m. Eastern time. Any significant deviation from expectations could reignite volatility.
Looking ahead, the market remains highly sensitive to geopolitical developments. A formal agreement and a resumption of normal tanker traffic could push prices lower, while renewed strikes, drone attacks, or vessel seizures could swiftly restore the risk premium.
