WTI fell for a third session and traded around $86.50 after touching one-month lows a few pips under $86.00. The US benchmark was on course for an almost 15% drop over the past two weeks, while a risk-relief move linked to a US–Iran truce extension weighed on the safe-haven US Dollar and helped equities rebound modestly.
Washington and Tehran agreed a memorandum of understanding to extend the ceasefire for 60 days, subject to approval by US President Donald Trump. The arrangement would keep talks on Iran’s nuclear programme going and, according to Axios, could ease restrictions on sea traffic through the Strait of Hormuz. Separately, the EIA reported US crude inventories fell by 3.327 million barrels in the week of 22 May; this was lighter than the 5 million forecast and, after last week’s 7.864 million drop, still marked a fifth straight weekly decline.
Renewed Diplomatic Talks and Market Reactions
We see WTI crude trading near one-month lows around $78.25, capping a significant two-week decline from the $85 level. This downward pressure is largely a reaction to news of renewed diplomatic talks in Vienna, which raises the possibility of more Iranian supply entering the market. The market is pricing in a higher probability of de-escalation in the Middle East.
Despite the bearish sentiment, we note that underlying fundamentals provide some support. The latest EIA report showed a 2.1 million barrel draw in U.S. crude inventories, marking the sixth consecutive weekly decline. This continued depletion of stockpiles, which are now about 4% below the five-year average for this time of year, suggests physical demand remains solid.
OPEC+, Economic Headwinds, and Trading Strategies
Looking ahead, all eyes are on the upcoming OPEC+ meeting scheduled for June 2. With prices having retreated significantly, we expect the group to extend its current voluntary production cuts of 2.2 million barrels per day through the third quarter. Any deviation from this consensus would introduce significant volatility into the market.
Beyond oil-specific factors, we are also watching the broader economic picture, as the latest Personal Consumption Expenditures (PCE) index came in slightly hotter than anticipated. Stubborn inflation could delay anticipated Federal Reserve rate cuts, potentially dampening economic growth and future oil demand forecasts. This creates a headwind that balances the supportive inventory data.
For the coming weeks, we see an environment ripe for options strategies rather than outright directional bets. Selling straddles or strangles could be advantageous to capitalize on elevated implied volatility that we expect to decay if prices become range-bound between geopolitical fears and supply support. This approach allows us to profit from time decay while the market digests these conflicting signals.
