The price of West Texas Intermediate (WTI) dropped to about $56.35 during Asian trading on Tuesday. This drop is linked to possible progress in peace talks between Russia and Ukraine. A peace deal could help reduce the chances of supply disruptions from Russia. US officials have suggested that a peace agreement with Ukraine’s President Volodymyr Zelenskyy is close to being finalized, though there are still some unresolved issues related to territory and security. If a peace deal is reached, it could increase Russian oil supply, which might drive WTI prices even lower. Alternatively, the threat of US military action in Venezuela could limit how much WTI prices fall.

Impact of Sanctions and Supply Dynamics

Venezuela’s oil exports have significantly reduced due to US sanctions and the seizure of a supertanker. WTI Oil, a key benchmark for crude oil, is affected by supply and demand, political issues, and decisions made by OPEC about production. The value of the US Dollar also plays a role, as oil is traded in this currency. Data from the American Petroleum Institute (API) and the Energy Information Administration (EIA) can influence WTI prices too. Lower inventory levels indicate higher demand, which can push prices up, while higher inventories often result in price decreases. OPEC’s production choices frequently impact WTI prices since they dictate global oil supply. With WTI crude oil falling below $56.50 on news of a possible peace deal between Russia and Ukraine, we are seeing a clear bearish shift. Traders might consider purchasing out-of-the-money put options on February or March 2026 futures contracts, anticipating a drop toward the low $50s. This strategy allows traders to manage risk while taking advantage of the likelihood of Russian oil returning fully to the market. We should recall what happened during the 2015 Iran nuclear deal, which pressured oil prices down for months as new supplies were expected. This bearish outlook is strengthened by last week’s Energy Information Administration (EIA) report, which revealed a surprise increase in inventory of 2.1 million barrels, contrary to expectations of a decrease. However, ongoing tensions with Venezuela may provide some support for prices.

Uncertainty and Volatility in Oil Markets

Implied volatility on WTI options is currently high, reflecting significant uncertainty about the peace deal’s success. Traders can adopt strategies like bear put spreads to manage costs and control risk during this volatile period. This involves buying a put option at a higher strike price and selling one at a lower strike price, allowing for profit from a moderate price decline while protecting against sudden increases. In the upcoming weeks, it’s important to watch signals from the next OPEC+ meeting. With prices falling to levels that may strain the budgets of many member nations, the cartel is likely to indicate or implement production cuts to create a new price floor. If production cuts are coordinated, especially if they involve a post-war Russia, it could quickly reverse the current downward trend. Create your live VT Markets account and start trading now.

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