Crude Oil prices eased on Friday, with the US benchmark West Texas Intermediate (WTI) trading at $69.65, the lowest level since 27 February. The contract has prolonged a weekly slide and is down more than 30% since late May, as the partial reopening of the Strait of Hormuz and expectations of increased Middle Eastern supply have outweighed support from firmer seasonal consumption linked to the western holiday period.<\/p>\n
The US Energy Secretary said flows through the Strait of Hormuz had returned to pre-war levels, with about 20 million barrels moving through on Wednesday, even though a near three-month closure means a full normalisation may take weeks. He also said US-administered Venezuelan Oil exports have risen and could double by the end of President Donald Trump\u2019s term in 2029, reinforcing downward pressure. Market pricing also reflects prospects of higher output from Gulf producers alongside additional Iranian supplies after US restrictions were waived during the ceasefire, as traders look for a rapid rebuild in depleted global Oil reserves.<\/p>\n
Given the sharp 30% price decline since late May, we see the dominant market pressure as bearish. The rapid reopening of the Strait of Hormuz, now reportedly at pre-war flow levels of 20 million barrels per day, has convinced the market that supply concerns are over for now. Implied volatility on near-term options, while still elevated around 45%, is falling, suggesting traders expect this downward price trend to continue.<\/p>\n
We believe the additional barrels from both Iran and Venezuela are not yet fully priced into the market. Current estimates suggest a combined 1.5 million barrels per day could be added to global supply over the next quarter, creating a significant headwind against any price recovery. This supply boost is overshadowing the seasonal demand increase from the summer holidays in the US and Europe.<\/p>\n
Recent data shows that while US gasoline demand rose by 3% last week, it was insufficient to absorb the new supply hitting the market. For derivative traders, this indicates that short positions remain favorable in the coming weeks. We are looking at buying put options with strike prices at the $65 and $60 levels to capitalize on further downward momentum.<\/p>\n
Selling out-of-the-money call credit spreads above the $75 resistance level is another strategy we are implementing. This approach takes advantage of the relatively high option premiums and will profit as long as WTI does not experience a sudden, sharp rally. However, any negative headlines from the ceasefire talks or Hormuz could cause a violent price spike, so these positions must be managed carefully.<\/p>\n
Looking further ahead, we acknowledge that global reserves are severely depleted after the three-month closure. The process of replenishing strategic reserves, which fell by an estimated 400 million barrels, will eventually create a floor for prices. Therefore, we are cautiously considering longer-dated call options for the fourth quarter as a hedge against the market having over-corrected to the downside.<\/p>\n\n\n\n