Crude Oil prices fell back from recent peaks on Wednesday but stayed above $100. West Texas Intermediate (WTI) held above $102.00 as tensions between the US and Iran increased.
US President Donald Trump said on Tuesday that the US could attack Iran in the next two or three days if Tehran does not sign a peace deal. Vice President JD Vance said the US is “locked and loaded” to resume military action, while Iranian Foreign Minister Abbas Araghchi warned of “surprises” if the US restarts operations.
Oil Market Supply Risks
The blockade of the Strait of Hormuz is nearing its third month, with no reopening plan. This is restricting global supply of oil and other commodities, including gas and fertilisers.
An Association of Petroleum Industries report on Tuesday showed US oil stocks fell by 9.1 million barrels in the week of May 15. This compared with expectations for a 3,4 million barrel drawdown and followed a 2.18 million barrel fall the prior week.
The data supported prices ahead of the US Energy Information Administration (EIA) Crude Oil Stocks Change report due later on Wednesday.
We recall the extreme market tension this time last year, when the blockade of the Strait of Hormuz and conflict threats sent WTI crude over $100 a barrel. The significant draw on US oil stocks during May of 2025, like the 9.1 million barrel decline reported mid-month, only added fuel to that fire. Today, the geopolitical landscape has shifted, creating a very different trading environment for us.
Trading Strategy Outlook
The reopening of the Strait of Hormuz late last year has eased the most severe supply constraints we were facing. In fact, OPEC+ responded to the normalized shipping routes by agreeing last month to a modest production increase of 400,000 barrels per day starting in July to meet recovering, yet fragile, global demand. This stands in stark contrast to the supply shock that defined the market in 2025.
Last week’s Energy Information Administration (EIA) report showed a surprise build in US crude inventories of 2.5 million barrels, against expectations of a minor draw. This suggests that production is now outpacing the slower-than-hoped-for economic recovery, with recent Chinese manufacturing PMI data for April 2026 coming in at a tepid 50.1. The market is now more concerned with demand weakness than the supply scarcity we saw last year.
With the geopolitical risk premium fading, implied volatility on crude options has fallen from the highs seen during the 2025 Hormuz crisis. We see this as an opportunity for traders to consider selling out-of-the-money call options or implementing bear call spreads. These strategies can generate income by taking the view that prices will remain capped, with significant resistance now seen near the $90 per barrel level for WTI.
Given the current fundamentals, we believe buying protective puts could also be a prudent strategy to hedge against any further negative economic data. A break below the $82 support level could signal a deeper move downwards, a scenario that seemed impossible last year. Therefore, positioning for range-bound trading with a slight bearish tilt appears to be the most logical response in the coming weeks.
