(Bloomberg) -- Oil recovered slightly after two days of stark losses, with prices still broadly pressured by a pending US-Iran interim peace deal that threatens to send barrels gushing back onto the market.

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West Texas intermediate traded near $77 a barrel after briefly touching a three-month low. US President Donald Trump said that if he didn’t like what he saw from Iran he would strike the country again. The comments come as an interim peace deal between the two countries, which is due to be signed on Friday, offers Tehran broad financial incentives, including the right to sell its oil immediately. That has sparked a precipitous selloff in crude.

Shipowners are gearing up for the reopening of the Strait of Hormuz by repositioning vessels toward the Middle East. Any eventual resumption could also lead to the release of more than 100 laden ships with oil from Middle East countries other than Iran that are stuck inside the Gulf, effectively acting as a stockpile release on the market.

The prospect of a rush of new supply is showing up in major market gauges. Key timespreads in the Middle Eastern Dubai market have already plunged into the bearish contango structure that signals oversupply. Brent’s nearest timespread was on a similar path earlier on Wednesday.

The International Energy Agency warned on Wednesday that the conflict is causing a bigger hit to demand than previously thought, while adding in its first look at next year’s balances that it expects a renewed glut.

Crude prices are down by almost 40% from their peak during the conflict. Producers, shippers and traders are now assessing whether the interim peace agreement will prove to be durable, and how long it will take for vessel transits of the Hormuz chokepoint to be revived in earnest. Sticking points remain, including opposition in Israel, which launched the war with the US in late February.

But the scale of the price drop is already quashing concerns about a further energy-induced inflationary spike.

“This decline is not merely a reduction in the geopolitical risk premium; it is a recalibration of the global oil balance for the months ahead,” said Tamas Varga, an oil analyst at brokerage PVM. “With oil prices tumbling, inflation expectations are likely to decline, while increases in consumer and producer prices should moderate.”