Oil Prices Continues To Nosedive As Traders Weigh Options On Alternative Supply Routes

Oil prices slumped further the most in four years as traders struggled to interpret conflicting signals about whether tanker traffic could soon resume through the Strait of Hormuz, the vital chokepoint for global crude exports.

West Texas Intermediate (WTI) fell 12 per cent to settle just above $83/bbl, marking the biggest one-day decline since March 2022. The selloff came after mixed messaging from U.S. officials about the status of tanker escorts through the Strait, which normally carries roughly one-fifth of global oil supply.

The White House said the U.S. Navy had not escorted an oil tanker through the waterway, contradicting an earlier social media post by Energy Secretary Chris Wright suggesting such an operation had occurred. The post was later deleted, and Iran’s semi-official Fars news agency also reported that no U.S. naval escort had taken place.

The conflicting signals have heightened uncertainty in energy markets already rattled by the war between Iran and Israel. The conflict has effectively halted most commercial shipping through the Strait of Hormuz, creating export bottlenecks and forcing several Gulf producers to curb output as storage tanks fill.

Market volatility has surged as traders react to rapidly shifting headlines and policy signals. A 60-day measure of historical volatility in front-month WTI futures has climbed to its highest level since September 2022.

Crude prices remain sharply elevated despite Tuesday’s drop. Brent and WTI benchmarks are still nearly 40% higher than at the start of the year as the prolonged disruption in Hormuz threatens to tighten global supply.

Earlier in the session, prices were already trending lower after Group of Seven nations asked the International Energy Agency (IEA) to prepare scenarios for a possible coordinated release of emergency oil stockpiles.

The move signaled that major consuming nations are preparing contingency plans to stabilize markets if supply disruptions worsen.

President Donald Trump also said the U.S. could waive certain oil-related sanctions and deploy naval escorts for tankers transiting the Strait, though details of such operations remain unclear.

Oil markets have experienced extraordinary swings in recent days. On Monday, benchmark crude contracts surged as much as 29 per cent amid escalating attacks across the Middle East and fears that prolonged shipping disruptions could remove millions of barrels per day from global markets.

Those gains quickly reversed as traders weighed the possibility that diplomatic or military interventions could reopen shipping routes and ease supply fears.

“Just as violent as the move was to the upside, we’re likely to see equally sharp moves to the downside,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Group. “The market is waiting for confirmation that meaningful volumes are actually moving through the Strait.”

Until tanker traffic through Hormuz resumes, analysts warn that global oil markets will remain highly sensitive to geopolitical developments and signals about the security of maritime energy supply routes.