The recent ceasefire in the Middle East has eased worries about oil supply, causing oil prices to drop by 16%. The outlook for demand is weakening, making it harder for prices to recover. This situation is made worse by Fed Chairman Powell’s recent comments to Congress. Crude oil is trying to stabilize after falling more than $10 from Monday’s high. With the ceasefire easing supply concerns, West Texas Intermediate (WTI) oil is still below $65.00 per barrel.

Truce Impact on Oil Supply

Tensions remain in the truce between Israel and Iran, but it is holding. Iran’s oil supply is not affected, and threats to the Strait of Hormuz have lessened, bringing prices back to where they were before the conflicts began. Demand uncertainties are growing as the US economy shows signs of slowing. Consumer confidence dropped in June, and the Eurozone is stagnant. China is struggling to recover, and OPEC+ plans to increase supply, which could lead to an excess of oil. Fed Chairman Powell’s recent comments about not signaling rate cuts affect the market. High inflation risks from tariffs are putting further pressure on the economy and oil demand. WTI Oil, or West Texas Intermediate, is a type of crude oil known for its low gravity and low sulphur content, mostly sourced in the US. Its price is influenced by supply and demand, political stability, and OPEC’s production quotas. What’s happening is fairly simple but might have lasting effects. Oil prices have dropped sharply—over 16% recently—primarily due to reduced fears. The ceasefire in the Middle East has eased concerns about supply interruptions. Before this, traders had raised prices based on the potential for disruptions, mainly through the Strait of Hormuz. Now that oil supplies, particularly from Iran, are unaffected, traders are adjusting their risk models. Crude is currently holding steady. The price of WTI shows it’s trying to find a short-term support level similar to what we saw before the regional tensions. This makes sense; the fear-driven buying that pushed prices up earlier is no longer active.

Powell’s Congressional Remarks

Powell’s comments in Congress didn’t help market sentiment. He avoided giving any hints about possible rate cuts that investors were hoping for. Instead, he firmly stated that fighting inflation is the Fed’s priority. This hawkish tone suggests that borrowing costs will likely remain high. Higher interest rates can slow down economic activity, limit growth, and reduce oil consumption. Tariffs also linger, keeping costs high in many sectors and distorting prices. Consumer sentiment in the US has declined again, further confirming a cooling economy. This trend isn’t limited to the US; China is underperforming post-lockdown, Europe’s economy has stagnated, and economic indicators are missing expectations. Simply put, it’s hard to predict a strong rebound in demand anytime soon. On the supply side, OPEC+ is signaling it may increase output later this year. If that happens without an increase in demand, inventories could rise, putting additional pressure on oil prices. When supplies exceed consumption, it becomes difficult for prices to gain support. From our view, implied volatility has decreased since the ceasefire, although it’s not completely gone. With reduced geopolitical risks and signs of weaker demand, the potential for directional oil trading is narrowing. The price curve is flattening, and trading activity in near-term contracts seems uneasy. Meanwhile, longer-term contracts are moving without strong direction. We are monitoring how the spreads between near-term and deferred contracts behave. If these spreads tighten, it might indicate that excess supply is expected. Conversely, if they widen unexpectedly, it could signify renewed risks in positioning. We should also keep an eye on refining margins, which have contracted, hinting that downstream fuel demand might also be waning. Upcoming events, such as jobs figures, PMI releases, and OPEC statements, will reveal whether this stabilization can last or if further declines are on the horizon. For now, the likelihood of a recovery seems low, unless there are unexpected developments in the economy or global diplomacy. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now