The price of US West Texas Intermediate (WTI) Crude Oil is stable around $74.00. Concerns about US involvement in the Middle East conflict and possible supply issues are influencing this. Tensions between US and Iranian officials have raised fears of a larger conflict, leading WTI prices to hit their highest levels in four months. In the morning session in Europe, WTI prices rose above $73.00, with Nymex futures hitting $75.00. Over the past two weeks, oil prices have jumped more than 20%, rising from lows of $55 in early May. There are worries that Iran might block the Strait of Hormuz, which could push prices above $100.

Iran and the United Nations Warning

Iran’s ambassador to the UN has warned of a strong reaction to US involvement, which could impact oil prices. He accused the US of backing Israel and promised a fitting response. Meanwhile, Trump is insisting on Iran’s unconditional surrender. WTI Oil is a high-quality crude known for its low density and sulfur content. It serves as an important benchmark in the oil market, influenced by supply and demand, geopolitical events, and OPEC decisions. Data from the API and EIA, as well as the value of the US Dollar, also play a role in determining WTI prices. In the last two weeks, prices have not only recovered but surged dramatically, highlighting a shift in sentiment largely driven by political risks instead of market fundamentals. Rising tensions in the Middle East, particularly between Tehran and Washington, have fueled this rally. Such events often affect market sentiment before actual supply and demand fundamentals catch up. The Strait of Hormuz is once again a focal point in energy market discussions. Nearly 20% of the world’s oil passes through this narrow waterway. While threats of disrupted flow in Hormuz have been present for years, recent warnings, especially from Iran’s UN ambassador, are notably more direct. If Iran were to block the area, it would significantly disrupt oil volumes and likely lead to sharp price increases.

Volatility and Market Reactions

The rise of WTI to four-month highs, partly fueled by increasing diplomatic tensions, suggests a shift in how risks are priced. We are witnessing a rush to hedge, not only due to worries about supply routes but because speculative interests are merging with tight market conditions as summer demand rises. Trump’s comments, particularly his demands for Iran’s complete submission, are adding another layer of uncertainty. This approach has sidelined more moderate voices in negotiations, increasing the risk of escalating tensions. Therefore, pricing models that factor in geopolitical risks may become more relevant. We are also noticing signals from forward curves. The current backwardation in some oil futures indicates that traders expect ongoing or worsening tightness in the upcoming months. This pattern, where near-term prices exceed those of longer-term contracts, often indicates current supply challenges or rising demand expectations. It’s essential to consider the timing of data releases, too. Weekly US inventory reports from both API and the EIA can cause price fluctuations. Recent inventory drawdowns suggest tightening domestic supply. While a single report doesn’t dictate trends, several drawdown reports could lead to continued bullish pressure. A weakening US Dollar also indicates an environment where energy prices may keep rising unless political tensions significantly ease. We’ve seen implied volatility in options markets, especially for short-term WTI contracts, increase in recent days. This shows growing uncertainty about the near-term price direction, with risk reversals leaning towards call-side premiums. This suggests stronger hedging demand from commercial players expecting further price increases. In summary, the story isn’t just about current pricing around $74 or last week’s rise to $75. It’s also about how both physical and paper markets respond to a mix of diplomatic tensions, supply route concerns, and signals from the derivatives markets indicating higher volatility could be coming. For those trading futures or managing exposure to energy-linked options, it’s crucial to stay alert to regional developments and changes in rhetoric from US or Iranian officials. This is not a market to be complacent in. Keep pricing models adjustable and be ready to revise volatility expectations. The upcoming weeks likely won’t bring calm. Create your live VT Markets account and start trading now.

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