Crude benchmarks have retraced most of the risk premium linked to late-February disruption in the Strait of Hormuz, as an interim US-Iran ceasefire and the first tanker transits nudged WTI towards the mid-70s and Brent to just under 80. Talks have slipped from Friday to mid-next week, yet futures have traded as though supply chains are already normalised. In the physical market, the tightness is concentrated downstream: refined products and petrochemical feedstocks remain constrained while crude prices fall. Refining capacity is the binding limit after permanent closures removed more than 1 million barrels a day, and lighter US shale grades yield relatively less diesel and jet fuel.
Upstream indicators also point to scarcity. Commercial stocks at the main US delivery hub have fallen for eight straight weeks to roughly 20 million barrels, near operational floor levels, while broad US inventories are back around mid-1980s territory on record exports. Reopening the Strait is proving gradual, with mine clearance taking months, tanker repositioning weeks, and shut-in fields slower to restart; advisers expect flows may not return to pre-war levels until deep into next year. Official forecasts now see global consumption shrinking this year and Brent drifting towards the low-70s by the fourth quarter, with further downside in 2027. Technical levels show WTI resistance near 77.00, then a 200-day EMA at 78.00 to 78.50 and 80.00, while support sits around 75.00 and 74.00; Brent resistance is 80.00 and its 200 EMA at 82.50 to 83.00, with support at 78.00 to 78.50 and then 76.00. Stoch RSI is near oversold.
Market Dislocation and Refined Product Constraints
We see the crude oil market as having sold off too quickly on hopes of a US-Iran ceasefire. While West Texas Intermediate (WTI) has dropped to the mid-$70s, the physical market realities do not support such a rapid price decline. The futures market is pricing in a recovery that simply has not happened yet.
The core tightness has shifted downstream to refined products like diesel and jet fuel. A global shortage of refining capacity means that even if crude gets cheaper, the supply of these essential fuels will remain constrained. The latest data shows the 3-2-1 crack spread, a measure of refining profitability, remains elevated near $35 per barrel, well above the five-year average for June.
US oil inventories, especially at the main delivery hub in Cushing, Oklahoma, are at critically low levels. The Energy Information Administration’s (EIA) report for last week showed another draw on commercial stockpiles, taking Cushing inventories down to just over 20 million barrels. This is close to the operational floor and signals a very tight upstream market.
Strait Reopening Realities and Tactical Positioning
The reopening of the Strait of Hormuz is being treated like a switch, but history shows it is more like a slow dial. Past disruptions have shown it can take many months to clear waterways and for producers to safely restart shut-in fields without damaging the reservoirs. We expect the return of these barrels to be a story for 2027, not the next few weeks.
Therefore, we believe the recent selloff is overdone and presents a tactical opportunity. With technical indicators like the Relative Strength Index showing oversold conditions, we would look to fade this weakness as long as WTI holds support between $74.00 and $75.00. We anticipate a price recovery back toward the 200-day moving average near $78.00.
However, we are not long-term bulls, as a supply glut is likely once Gulf barrels do return to the market. Global demand forecasts for the second half of the year have been softening, with the IEA now projecting a market surplus by early 2027. Our strategic view is to sell into any rallies that extend into the low-$80s, positioning for lower prices into next year.
