WTI, the US crude oil benchmark, traded near $62.50 in early European hours on Friday. Prices faced selling pressure due to ongoing worries about oversupply.
The IEA said in its monthly report on Thursday that global oil demand growth for this year is expected to be weaker than it previously forecast. It also projected that overall supply will exceed demand.
Us Inventory Data Adds Pressure
US inventory data added to the downside. The EIA reported that US crude stockpiles rose by 8.53 million barrels in the week ending 6 February, after a fall of 3.455 million barrels the prior week.
Geopolitical developments provided some support. The Wall Street Journal reported on Wednesday that the US is considering seizing tankers carrying Iranian crude, and may send a second aircraft carrier strike group to the Middle East if nuclear talks with Iran fail.
Market participants are watching US-Iran relations for further direction. This focus may contribute to continued price swings.
Looking back to early 2025, we saw a similar battle between weak supply-and-demand fundamentals and geopolitical risk when WTI was trading around $62.50. Today, that tension has only intensified, with the market still struggling to find a clear direction. The core conflict from a year ago remains the central theme for traders right now.
Persistent Oversupply Versus Geopolitical Risk
The oversupply concerns have proven to be persistent, creating significant headwinds for oil prices. The IEA’s latest report from January 2026 continued this narrative, forecasting that global supply will outpace demand growth for the third consecutive quarter. We’ve also seen U.S. crude inventories build in four of the last six weeks, with the latest EIA data showing a 4.2 million barrel increase, which is weighing on the market.
On the other hand, the geopolitical risk premium tied to Iran is very much alive and is preventing prices from falling further. The breakdown of diplomatic talks in Vienna last month has kept the market on edge, making the threat of shipping disruptions in the Middle East a real possibility. This situation is the primary reason oil has not collapsed under the weight of its own supply.
Given this environment, we believe playing for volatility is more prudent than making a simple directional bet. Implied volatility on WTI options has climbed to nearly 40%, up from an average of 32% in the last quarter of 2025, showing the market is pricing in a significant move. Strategies like long straddles or strangles could be effective, as they profit from a large price swing regardless of whether it’s up or down.
For those leaning bearish due to the overwhelming supply data, buying puts offers a clear way to position for a downturn. However, given the unpredictable nature of geopolitics, it would be wise to finance those puts by selling out-of-the-money calls. This creates a risk-reversal or collar strategy that protects against a sudden price spike if tensions in the Middle East escalate unexpectedly.
