WTI US oil fell on Wednesday to about $92.30, down 7.62% on the day. The move followed reports of diplomatic progress between the United States and Iran, which reduced concerns over supply disruption.
Axios reported that the US and Iran are close to a memorandum of understanding linked to wider talks on Iran’s nuclear programme. The report included a gradual lifting of restrictions around the Strait of Hormuz, an Iranian moratorium on nuclear enrichment, easing of US sanctions, and the release of frozen Iranian assets.
Diplomatic Developments And Supply Risk
Axios also said the White House expected a response from Tehran within the next 48 hours. Reuters cited a Pakistani diplomatic source saying the two sides were “very close” to finalising an agreement.
US President Donald Trump said “Project Freedom”, a military operation aimed at securing commercial shipping in the Strait of Hormuz, would be temporarily paused during talks. US Defence Secretary Pete Hegseth said the ceasefire between the US and Iran “certainly holds for now”.
The Energy Information Administration reported a US crude stock drawdown of 2.314M barrels last week, after a 6.233M barrel decline the week before. The result was near expectations for a 2.8M barrel decrease, and Goldman Sachs said global oil inventories are near the lowest levels in nearly eight years.
We saw last year in 2025 how quickly the geopolitical risk premium can evaporate from oil prices. The market fell over 7% in a single day on diplomatic news, dropping WTI to near $92 despite bullish inventory data. This demonstrates that headline risk, especially concerning major supply channels like the Strait of Hormuz, can completely override underlying fundamentals.
Market Impact And Positioning
The aftermath of that 2025 agreement has kept a lid on prices, with Iranian exports now consistently holding around 1.8 million barrels per day. This additional supply is a key reason WTI trades closer to $84 a barrel today, on May 6, 2026. The market has successfully absorbed this supply, but it has also removed a significant buffer against future disruptions.
Currently, the fundamentals are not offering support, in contrast to the drawdowns we saw in 2025. Last week’s EIA report showed a surprise inventory build of 1.5 million barrels, pressuring prices further. This bearish supply data, combined with ongoing concerns about a slowdown in Chinese industrial demand, creates a weak technical backdrop.
For the coming weeks, selling call option spreads looks like a prudent strategy. With WTI struggling to hold above $85, selling the $88-$90 call spread for June expiration could yield premium while defining risk. This position benefits from price stagnation or a further slide, reflecting the current oversupply sentiment.
However, we must remain aware of how quickly the situation can reverse. Given the renewed tensions in the South China Sea, holding some cheap, out-of-the-money call options is a necessary hedge. Purchasing July $95 calls, for instance, provides protection against a sudden supply shock that is not currently priced into the market.
