WTI fell 2.49% on Friday to $92.47 and was set for a weekly drop of more than 7.39%. The move followed speculation of a US-Iran agreement and attention on the Strait of Hormuz.
Markets tracked reports that the US and Iran exchanged fire overnight, while Washington awaited Tehran’s response to a 14-point memorandum. Reuters reported that trading focus was on war-related headlines and the prospect of Hormuz reopening.
Market Drivers And Price Action
Baker Hughes said US drillers added oil and gas rigs for a third straight week. The total rose by one to 548, but was down 30 rigs, or 5%, from a year earlier.
US data showed Nonfarm Payrolls in April rose to 115K versus an expected 62K. University of Michigan consumer sentiment fell to its all-time low in May, alongside concern about high petrol prices.
Technically, WTI held above a simple moving average cluster near $91.98, with the 14-day RSI near 48. Support was cited around $92.00–$92.50, then near $89.00 and $80.82; projections included a move above $100 if conflict escalates.
It is interesting to look back at the optimism we saw around this time in 2025. Hopes for a US-Iran deal were high, pushing WTI down toward $92 per barrel. Today, with that deal having fallen apart late last year and renewed tensions in the Strait of Hormuz, we see WTI crude trading much higher, hovering around $105.
Risk Premium And Volatility
The geopolitical risk premium that briefly faded in 2025 is now firmly back in the market. We should expect sharp, sudden price movements based on any headlines from the Persian Gulf. This environment suggests that owning options to protect against volatility is more prudent than holding naked futures positions.
On the supply side, the situation remains tight, justifying the higher prices compared to last year. OPEC+ has maintained its production cuts through the second quarter, and the latest Baker Hughes data shows the US rig count at only 605, a marginal increase that signals disciplined production growth from shale operators. This is a stark contrast to the rapid supply responses we’ve seen in previous cycles.
Meanwhile, the demand picture is becoming a concern, weighing against the bullish supply factors. The latest US inflation report showed Core CPI is still stubbornly high at 3.8%, making it unlikely the Federal Reserve will cut rates soon. Looking back, the weak consumer sentiment from May 2025 was a warning sign that sustained high energy prices would eventually slow the economy.
This week’s inventory data adds to the short-term bullish case, complicating the picture for traders. The EIA report on Wednesday showed a surprise crude oil drawdown of 4.2 million barrels, much larger than the anticipated 1.1 million barrel draw. This indicates that despite broader economic concerns, immediate demand remains robust.
Given these conflicting signals of tight supply versus weakening macroeconomic outlook, derivative traders should consider strategies that benefit from price swings. Long straddles or strangles could be effective plays on the expectation of increased volatility in the coming weeks. For those with a directional bias, buying call spreads offers a risk-defined way to bet on further upside from geopolitical flare-ups.
