WTI was trading around $85 early in Friday’s Asian session, slipping to its lowest level since mid-April and touching fresh two-month lows in the $84 area. The move came as the White House said a deal with Iran was pending Tehran’s signature, while US President Donald Trump said the Strait of Hormuz would reopen once it was signed; he also cancelled planned strikes. Iran’s FARS agency reported the US had accepted Iran’s proposed text and suggested approval odds were high, while separate reporting said an agreement in principle still required Supreme Leader Khamenei’s endorsement.
Technically, WTI remains bearish on the four-hour chart. Prices are below the 20-, 100- and 200-period SMAs at $88.12, $90.85 and $94.70, while the RSI is drifting towards 38 alongside negative Momentum readings. Resistance is seen at $88.12, then $90.85 and $94.70; support sits at $83, followed by $80 and April’s low at $78.88.
Geopolitical Developments And Market Impact
Given the new geopolitical landscape, we see the recent break below $85 in WTI as a fundamental shift, not a temporary dip. The removal of the Middle East risk premium means the market will now focus on a potential supply glut. This changes the trading environment for the foreseeable future.
The prospect of the Strait of Hormuz reopening fully is significant, as over 20 million barrels of oil pass through it daily, representing about 21% of global consumption. Current estimates suggest Iran could increase its output by at least 1 million barrels per day within six months of the deal being finalized. This new supply will likely cap any significant price rallies in the coming weeks.
Volatility, Trading Strategies, And Historical Precedent
We have observed a sharp decline in implied volatility, with the CBOE Crude Oil Volatility Index (OVX) dropping over 15 points this past week to trade near 28. This makes selling options premium an attractive strategy to capitalize on both range-bound price action and falling volatility. We are looking at implementing bear call spreads with strike prices above the $88 resistance level.
In the futures market, the front end of the WTI curve has moved into a deeper contango, signaling market expectations of oversupply in the near term. We view any strength toward the $88.12 moving average as an opportunity to initiate new short positions. Our initial target remains the psychological support level at $80.
This situation has historical precedent, as oil prices saw a prolonged slump after the initial 2015 Iran nuclear deal was announced, falling over 30% in the following six months. We believe a break of the $80 support level is probable. This would open a path toward testing the April lows near $78.88.
