WTI crude rebounded after opening with a bearish gap to about $96.45 on Monday. It traded just above the mid-$98.00s during the Asian session, still down over 1% on the day.
The US said it would begin an effort to free up ships stranded in the Strait of Hormuz. Iran’s parliamentary National Security Commission warned that any US interference would be treated as a ceasefire violation, raising concerns about supply disruption.
Geopolitical Tensions Support Prices
A lack of progress in US-Iran peace talks added to worries about tension in the region. These developments supported crude prices despite the earlier drop.
OPEC+ agreed a third straight monthly output rise, increasing production by 188,000 barrels per day in June for seven members. Oil also faced pressure from US Dollar buying, extending losses to a third day.
Geopolitical uncertainty and renewed expectations of a US Federal Reserve rate rise supported the dollar. This kept traders cautious about calling an end to the pullback from a nearly two-month high reached last Thursday.
The current volatility in WTI, with prices hovering near $85.50, is reminiscent of past periods of uncertainty. We are now watching tensions in the Bab el-Mandeb Strait, but we recall how quickly the Strait of Hormuz situation escalated back in the Trump administration, causing sharp price spikes. This history teaches us that geopolitical headlines can override fundamental data without warning.
Market Risks And Trading Positioning
On the supply side, the recent OPEC+ decision to hold production quotas steady creates an uneasy balance in the market. Looking back at 2025, we saw how their surprise 500,000 bpd cut sent prices soaring past $90, showing their willingness to act decisively. This precedent means traders must be prepared for a sudden policy shift if demand falters.
Demand signals are currently mixed, adding to the confusion for traders. While recent US EIA data showed a surprise crude inventory draw of 2.1 million barrels, China’s crude imports for April 2026 came in at 10.88 million bpd, just below forecasts. This tug-of-war between strong US consumption and softer Asian demand is keeping prices range-bound.
Unlike the clear bets on Fed rate hikes we saw in the past, the central bank’s recent pause has left the US Dollar directionless for now. We remember how the dollar’s steady climb throughout much of 2025 acted as a significant headwind for crude prices. Therefore, any upcoming inflation data that hints at a return to tightening could quickly put downward pressure on oil.
Given these conflicting forces, implied volatility in WTI options has climbed to over 35%. This suggests that instead of making simple directional bets, traders should consider strategies that profit from significant price movement, such as long straddles. Buying protective put options to hedge against a sudden drop on weak economic data also appears to be a sensible move in the coming weeks.
