WTI extended its slide on Wednesday, trading around $69.70 and down 4.40% at the time of writing, after touching its lowest level since 2 March. The US crude benchmark has unwound much of the geopolitical risk premium accumulated since the Israel–Iran war began and is edging back towards pre-conflict territory near $67. Selling gathered pace as fears of sustained disruption to Gulf energy exports eased, while maritime tracking data showed more vessels transiting the Strait of Hormuz, a sign that trade flows are normalising even though traffic remains below pre-conflict levels.
Diplomacy over long-term governance of the strait also moved forward, with Qatar and Oman proposing a framework that would bring together Iran, Gulf states and Iraq. In parallel, the US granted a temporary 60-day waiver permitting international buyers and American refiners to resume purchases of Iranian crude oil, lifting expectations of additional supply in coming weeks. ING reported that volumes through Hormuz are still well below pre-conflict levels and said the oil market shows signs of tightening, while TD Securities said floating crude inventories in the Gulf have fallen sharply in recent weeks. Markets are also watching US–Iran talks on nuclear inspections: President Donald Trump said Iran had agreed to allow IAEA inspectors to return, but Iranian officials said no timetable had been set.
Geopolitical Risks And Supply Dynamics
We are seeing West Texas Intermediate crude oil fall sharply, now trading in the low $70s after failing to hold the mid-$80s range from earlier this year. This decline reflects an easing of the geopolitical risk premium that had been priced in due to recent tensions in the Middle East. With U.S. crude production remaining robust at over 13 million barrels per day, the market’s focus is shifting back to supply fundamentals.
The bearish sentiment is being fueled by signs of slowing global demand, particularly with recent economic data from Asia suggesting a weaker growth outlook. This, combined with a temporary easing of sanctions enforcement that has allowed more supply onto the market, is creating significant downward pressure on prices. We believe the path of least resistance is lower in the immediate term as this supply-demand picture gets fully priced in.
OPEC+, Market Tightness, And Trading Strategies
However, we think this sell-off might be overlooking the underlying market tightness created by major producers. OPEC+ has signaled its intent to maintain production cuts well into next year, providing a firm floor against a total price collapse. Furthermore, with the U.S. Strategic Petroleum Reserve still near 40-year lows after the significant releases in 2022, the market has a much smaller buffer to absorb any unexpected supply shocks.
Given this backdrop of high uncertainty and clashing narratives, implied volatility in oil options has increased. We see an opportunity in selling premium through strategies like iron condors or short strangles, positioning for the price to find a new, stable range rather than continuing its freefall. This approach allows us to profit from time decay as the market digests the recent news.
In the coming weeks, our attention will be fixed on the weekly Energy Information Administration (EIA) inventory reports for any indication that summer demand is stronger than anticipated. A significant and unexpected draw in crude stockpiles would be the first sign that this bearish trend is exhausted. We are also positioning to use calendar spreads to bet on a price recovery later in the year, once the current oversupply fears subside.
