WTI extended a three-day slide on Wednesday, trading around $79.50 and slipping below $80. The US benchmark is down 9% from last week’s highs above $87.00, as reports of contacts between Iran and Oman over reopening the Strait of Hormuz tempered risk pricing. Oman News Agency said the two countries are holding technical talks to define a permanent maritime corridor, alongside indications a temporary route could be announced soon, while Tehran has linked any return to free transit to the lifting of a US naval blockade of Iranian ports.
A fresh package of US sanctions on Iran did little to arrest the sell-off. Attention is also turning to US inventory data, with the Energy Information Administration expected to report a 1.9 million barrel build in the week of 21 August, following a 4.4 million increase the week before. If confirmed, that would mark a fourth straight weekly rise in crude stocks.
Bearish Trading Strategies as Geopolitical Risks Subside
We recommend that derivative traders adopt a bearish stance on WTI crude over the coming weeks as geopolitical risks subside and global supplies rise. With WTI dropping 9% from its recent peak of over $87 down to the $79.50 area, the market is rapidly pricing out the conflict premium. To capitalize on this downward momentum, we suggest buying near-term put options or establishing bear call spreads.
The potential reopening of the Strait of Hormuz is a massive game-changer, as this narrow passage historically facilitates the transit of about 20 million barrels of oil per day, representing roughly 20% of global petroleum consumption. Since the US chose not to impose secondary sanctions on Iran’s trading partners, we expect localized supply anxieties to ease even further. We advise selling short-dated call options to capture premium decay as volatile geopolitical fears continue to cool.
Inventory Builds, Contango, and Risk Management Approaches
On the supply side, domestic inventory data heavily supports our short bias. The projected 1.9 million barrel buildup for the week ending August 21 marks the fourth consecutive weekly increase, following a massive 4.4 million barrel rise the week prior. We expect this compounding oversupply to push WTI toward its next major support level near $75, making short futures positions highly attractive.
For traders looking to manage risk, we recommend utilizing calendar spreads to exploit the widening contango structure as prompt-month prices soften faster than longer-dated contracts. Historical trends show that consecutive inventory builds in late August typically signal the transition out of the peak summer driving season, further dampening physical demand. We suggest keeping stop-losses tight around the $82 resistance level in case technical talks between Iran and Oman face sudden delays.
