WTI Oil weakens as Middle East export recovery tempers supply risk concerns

West Texas Intermediate (WTI) US Oil falls 3.25% on Friday and trades around $69.05 at the time of writing, after hitting its lowest level since late February at $68.48 earlier in the day. The Crude Oil extends its weekly decline as investors increasingly price in a recovery in global supply following the disruptions caused by the conflict with Iran.

Market sentiment has improved as Oil flows through the Strait of Hormuz continue to recover. QatarEnergy has launched its first July-August Crude tender since the conflict began, while Saudi Aramco has resumed loadings at its Ras Tanura terminal after several months of disruption. These additional volumes come on top of new supplies from Iraq, Kuwait and Abu Dhabi, reinforcing expectations of a stronger supply outlook.

US Energy Secretary Chris Wright also said that tanker traffic through the Strait of Hormuz has returned to levels close to those seen before the conflict, with around 20 million barrels transiting the waterway on Wednesday. He also stated that Venezuelan Oil production is increasing rapidly and could continue to grow through the end of US President Donald Trump's term, adding to expectations of a stronger global supply.

Despite the improved sentiment, several banks remain cautious. Commerzbank argues that the market is underestimating supply risks, noting that tanker traffic data still do not point to a full normalization of shipping activity. The bank also highlights that combined US inventories of Crude Oil, gasoline and distillates remain around 7% below their seasonal average, a factor that could support prices if exports recover more slowly than expected.

Rabobank also maintains a cautious stance following the recent attack on a cargo vessel off the coast of Oman. The bank believes the incident highlights the fragile security situation in the Strait of Hormuz, even though the market continues to expect the memorandum of understanding between the United States (US) and Iran to remain in place. According to Rabobank, the agreement continues to support Iranian Oil exports while limiting the immediate risk of further escalation.