WTI Oil rose for a second session, trading near $66.80 a barrel in Asian hours on Tuesday. It stayed close to a six-month high of $67.23, reached on 23 February.
Prices moved up amid concerns about supply disruption linked to possible military escalation in the Middle East. Oman said a third round of talks between Washington and Tehran will take place this week in Geneva.
Middle East Supply Risk
US envoys Steve Witkoff and Jared Kushner are due to meet an Iranian delegation. US President Donald Trump said on Monday that talks are due to resume on Thursday and warned of a “very bad day” for Tehran if a nuclear deal is not reached.
He also rejected reports that the Pentagon was concerned about the risks of a prolonged military campaign against Iran. In contrast, the US Energy Information Administration said expanding global Oil inventories are likely to weigh on prices.
The EIA expects global production growth to exceed consumption, leading to higher stockpiles. It forecasts global inventories will rise by an average of 3.1 million barrels per day in 2026, above the build seen in 2025.
Market participants also assessed renewed trade risks after the administration signalled new national security tariffs on several industries. These would use Section 232 of the Trade Expansion Act of 1962 and sit apart from a 15% global tariff announced on Saturday.
Trading And Volatility Outlook
We see oil prices pushing six-month highs due to fears of conflict in the Middle East. The upcoming talks between the US and Iran in Geneva are the main focus, creating significant uncertainty and risk premium in the market. This situation points to high implied volatility, as the CBOE Crude Oil Volatility Index (OVX) has recently climbed back above 35, a level not consistently seen since late last year.
Looking beyond the immediate headlines, the fundamentals appear weak for the rest of the year. The EIA is projecting a massive global inventory increase of 3.1 million barrels per day for 2026, a significant surplus that will weigh on prices. This supply glut, partly driven by continued strong production from US shale basins, suggests a ceiling on how high prices can go once current tensions ease.
On top of supply issues, we face renewed risks to global demand. New US tariffs could slow economic activity, much like the trade disputes we saw impact markets in 2025. With recent manufacturing PMI data from China dipping to 50.2, indicating only slight expansion, any new trade barriers will likely reduce global oil consumption forecasts for the coming quarters.
Given these conflicting signals, traders might consider strategies that benefit from high volatility in the near term. Buying options straddles on front-month contracts could capitalize on a large price move, regardless of direction, following the Iran news. For those with a longer view, the bearish inventory data suggests that selling rallies or purchasing put options for the second quarter could be a prudent way to position for a potential price correction.
