Oil News: Crude Oil Outlook Turns Negative as Diplomacy Eases Supply Risk

Nearby WTI Crude Oil Drops Below $84 as Strait of Hormuz Opens and Risk Premium Unwinds

Nearby WTI crude oil fell sharply Friday, dropping below $84 as traders pulled out the risk premium that had been supporting prices all week. Iran confirmed the Strait of Hormuz remains open during the ceasefire and that was enough. The worst case supply scenario the market had been pricing in started coming out fast.

Iran’s foreign minister said the strait is open to commercial traffic following controlled paths. That single statement unwound days of bullish positioning built on fears of a major supply disruption. President Trump added to the selling pressure when he suggested the conflict with Iran could end soon. Traders didn’t wait for confirmation. They sold it.

The 10-day ceasefire between Israel and Lebanon shifted the mood further. Hope for resumed U.S.-Iran talks replaced fear of escalation. The U.S. naval blockade on Iran is still in place but the market stopped trading the blockade and started trading the diplomacy. That’s a bearish shift in focus and prices reflected it immediately.

I keep coming back to how fast this move happened. The risk premium that took days to build came out in hours. That tells you positioning was crowded on the long side going into Friday. When the narrative flipped, the exits got congested.

Near term the bias stays bearish as long as the Strait remains open and ceasefire talks hold. One breakdown in negotiations and the risk premium comes back just as fast as it left.

Technical Outlook

Technically, the main trend is down according to the June WTI daily swing chart. A trade through $78.97 will signal a resumption of the downtrend. A trade through $104.34 changes the trend to up.

The market is currently testing two retracement zones at $83.90 to $79.08 and $79.73 to $73.92. The key area traders should be watching is the support cluster at $79.73 to $79.08. On Friday, June WTI reached a low of $78.97 before settling at $82.59.

The new short-term range is $104.34 to $78.97. Its retracement zone at $91.66 to $94.65 is new resistance. The 50-day moving average is at $80.52. It too was tested on Friday. The 200-day moving average is at $65.49.

The next move will be determined by trader reaction to $79.73 to $78.97. Prices are either going to continue to slide into at least $73.56 or possibly into the 200-day moving average at $65.49. Or make an attempt to retrace 50% to 61.8% of the break. That would make $91.66 to $94.65 the main upside target.

Given the volatility, it looks like we’re in a sell the rally and buy the dip situation, so be careful selling weakness or buying strength because the market could turn quickly.

More Information in our Economic Calendar.