WTI extended its sell-off for a second session, sliding below $84.00 in European trade on Tuesday to its lowest level since late August, and adding to the reversal from just above $104.00, the highest since May 18. The move followed talk of a US–Iran peace deal after US President Donald Trump said there was positive momentum towards ending the war and that further strikes were unlikely. Geopolitical risk nevertheless remained after Mohsen Rezaei, secretary of Iran’s Supreme National Security Council, rejected reports of active negotiations and said Washington must accept Tehran’s seven conditions. A softer US Dollar offered some counterweight, with markets awaiting US consumer inflation data.
Technically, the drop through the 200-day SMA and the 50% Fibonacci retracement around $85.48 strengthened the bearish set-up. The RSI hovered near oversold territory at about 33, while the MACD stayed deeper in negative territory, pointing to continued downside pressure. Support levels were cited at the 61.8% retracement near $81.11, then the 78.6% level around $74.89, and the prior swing low zone near $66.96. On the upside, resistance sat at $85.48 and the 200-day SMA at $86.31, with further barriers at $89.85, $95.26 and $104.00.
Strategy Amid Technical Weakness and Geopolitical Fluctuations
We suggest positioning for further downside while remaining cautious of abrupt intraday reversals triggered by shifting geopolitical headlines. With WTI slipping below the 200-day moving average and breaking key Fibonacci support around $85.48, short-term momentum favors sellers targeting the next support near $81.11. We can look for tactical short entry points on minor relief rallies that retest the $85.50 to $86.30 resistance zone.
History shows that when war premiums evaporate rapidly, crude prices often fall by 15% to 20% over a short period as physical market fundamentals regain dominance. Current global oil demand sits around 103 million barrels per day, but expanding OPEC+ spare capacity of nearly 5.8 million barrels per day limits the threat of lasting supply crunches. We advise managing downside risk using strict stop-loss orders placed just above $86.50 to guard against headline-driven spikes.
Risk Management and Macro Considerations
Because the Relative Strength Index sits near oversold territory at 33, opening direct short positions carries increased risk of a sudden snap-back. Instead, we favor using defined-risk options strategies, such as bear put spreads targeting the $81.00 and $75.00 levels, to capture downside potential while limiting upside risk. This approach allows us to participate if prices slide toward the deeper 78.6% retracement zone near $74.89 without getting wiped out by sudden volatility.
Traders must also monitor incoming macroeconomic releases, particularly the upcoming US consumer inflation data that directly sways the US Dollar. Historical market data shows that a 1% swing in the Dollar Index often drives an inverse move in crude oil prices of up to 2.5%. We recommend keeping leverage conservative in the coming weeks until market volatility cools and price action tests the broader trend floor near $66.96.
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