WTI rose by more than 3% on Monday as conflict in the Middle East escalated. It traded at $102.55 per barrel after moving up from a daily low of $96.45.
UAE authorities said a fire broke out at Fujairah petroleum facilities after an Iranian drone attack. The UAE defence ministry said three missiles were intercepted and a fourth fell into the sea.
Markets React To Escalating Regional Risk
CNN sources in Dubai said they expect US and Israeli attacks on Iran within the next 24 hours. A US admiral said Iran targeted commercial and US military ships with cruise missiles, and said six Iranian small boats were destroyed while they tried to disrupt commercial shipping.
Iranian media said a US ship was hit, while Axios cited a US official saying no attack happened. Iran’s Revolutionary Guards Navy published a map showing expanded control zones near the Strait of Hormuz, including Fujairah and Khorfakkan, and the coast of Umm Al Quwain.
President Donald Trump announced ‘Operation Freedom’ to protect commercial shipping in the Strait of Hormuz. South Korea reported a fire and explosion on a vessel, and the UAE accused Iran of using drones to attack an ADNOC vessel in the strait.
The UAE said it will exit OPEC and produce oil without restrictions. US Factory Orders rose 1.5% month-on-month in March, above 0.5% expected and 0.3% in February.
Technically, WTI had an upward bias, with RSI above 50 and a bullish engulfing pattern. Levels cited were $103.86, $104.00, $107.35 and $108.00 on the upside, and $100.00 then the 50-day SMA at $89.65 on the downside.
Current Backdrop And Key Drivers
We recall the events of last year, when tensions in the Middle East caused a sharp spike in WTI crude to over $102 a barrel. The conflict, involving Iranian attacks on the UAE and subsequent US naval operations in the Strait of Hormuz, introduced a significant risk premium into the market. The UAE’s departure from OPEC at that time also created long-term uncertainty about coordinated global supply.
As of today, May 5, 2026, WTI is trading closer to $95 per barrel, reflecting a partial easing of those immediate supply fears. However, last week’s Energy Information Administration (EIA) report showed a surprise build in U.S. crude inventories of 2.1 million barrels, against expectations of a draw. This suggests that near-term demand may be softening, creating a headwind against the lingering geopolitical risks.
The Strait of Hormuz, the focal point of last year’s ‘Operation Freedom,’ remains a point of underlying tension, with shipping insurance premiums still elevated compared to pre-2025 levels. While direct military clashes have subsided, the expanded Iranian control zones declared last year mean any regional flare-up could quickly threaten this critical chokepoint again. This latent risk continues to provide a floor for prices, preventing a more significant slide.
On the supply side, the UAE has steadily increased its output by nearly 400,000 barrels per day since leaving OPEC, adding barrels to the global market. Countering this, the remaining OPEC+ coalition, in their meeting last month, agreed to maintain existing production cuts through the third quarter to support prices. This creates a push-and-pull dynamic between disciplined core members and independent producers.
Recent macroeconomic data from the U.S. shows inflation remaining stubborn at 3.1% and a stronger-than-expected jobs report, which has strengthened the U.S. Dollar Index to a six-month high. A strong dollar makes oil more expensive for holders of other currencies, which could weigh on global demand. This financial pressure is competing directly with the supply-side risks from the Middle East.
Given this environment, a volatility-based strategy using options is prudent. Buying long-dated call options or call spreads allows traders to position for a potential price spike if Mideast tensions re-escalate, while defining risk if prices fall due to weak demand. Conversely, for those who believe macroeconomic headwinds will dominate, buying puts can offer downside protection or a speculative short position.
From a technical standpoint, the market is caught between the 50-day moving average at $91.50 acting as support and the key psychological level of $100 acting as resistance. The “bullish engulfing” pattern we saw during the 2025 spike serves as a reminder of how quickly sentiment can turn on geopolitical news. Traders should watch for a decisive break of this range to signal the market’s next major direction.
