Crude Oil Trading Alert: Geopolitical Risk Premium Receding, Oil Prices Enter Range-Bound Trading, Beware of Further Reversals

Reuters Finance APP News — Recently, the international crude oil market has experienced a significant pullback, primarily driven by a phased easing of tensions in the Middle East. The United States has submitted a conflict resolution plan to Iran containing about 15 points and is pushing for a ceasefire arrangement lasting approximately one month to create space for subsequent negotiations. This development has directly altered market expectations regarding the evolution of the situation, leading to a concentrated unwinding of the risk premium that had accumulated due to escalating conflicts.

From the market performance perspective, WTI crude oil prices quickly declined after the news was announced, breaking below the $89 level, indicating that funds are rapidly repricing geopolitical risks. The previous rally in oil prices was mainly driven by concerns that key energy transportation routes could be disrupted, with the Strait of Hormuz accounting for about 20% of global seaborne crude oil shipments. If the situation worsens, it could cause substantial disruptions to global supply. However, with diplomatic signals being released, the likelihood of such extreme scenarios has significantly decreased.

Nevertheless, the market has not fully shaken off uncertainty. The ceasefire arrangement is clearly phased, and whether substantive progress can be made in negotiations remains uncertain. Meanwhile, the U.S. continues to increase military presence in the Middle East, implying that the situation still involves a “negotiation while playing the game” dynamic. Market sentiment is shifting from “extreme risk aversion” to “cautious observation,” which may keep volatility at elevated levels.

From a broader macro perspective, current oil price fluctuations are mainly driven by sentiment rather than fundamental supply and demand changes. On the supply side, OPEC+ has yet to release new policy signals, and the overall production cut framework remains stable; on the demand side, although there are signs of economic slowdown globally, there has been no clear demand collapse. Therefore, the recent decline in oil prices is essentially a compression of risk premiums, not a result of supply-demand imbalance.

On the global market level, the decline in oil prices provides some relief to inflation expectations, helping to ease policy pressures on major economies and marginally supporting risk asset sentiment. However, for the energy sector, short-term profit expectations may need to be revised downward, and capital allocation could become more cautious. Investors are increasingly focusing on the progress of subsequent negotiations, inventory changes, and demand performance of major economies, shifting attention away from geopolitical conflicts.

From a technical perspective, the WTI daily chart shows signs of a temporary top, with prices encountering resistance near previous highs and pulling back, while momentum indicators weaken, indicating a clear loss of upward strength. Prices are gradually entering a consolidation range, with $93 near-term resistance corresponding to previous high sentiment levels, and $83 as a key support, which also serves as a critical dividing line between bulls and bears. A decisive break below this level could open further downside space.

On the 4-hour chart, prices are showing a short-term oscillating downward structure, with diminishing rebound strength and lower highs, indicating that bears are gradually gaining control. However, near the $83 level, buying interest still exists, suggesting that the market has not yet formed a consensus on a bearish outlook. Overall, oil prices are more likely to fluctuate within the $83-$93 range, awaiting new fundamental drivers.

Summary

In conclusion, the recent decline in WTI is mainly due to the rapid unwinding of geopolitical risk premiums rather than a fundamental shift in supply and demand. Diplomatic efforts have significantly eased fears of conflict escalation, but since negotiations are still in the early stages, uncertainty remains high. In the short term, oil prices are likely to enter a consolidation phase, limited by the retreat of risk premiums on the upside and supported by fundamentals on the downside. Future trends will depend on the evolution of geopolitical tensions and the re-pricing of supply-demand data. Investors should closely monitor negotiation progress and the validity of key support levels.

(Edited by: Cao Yanyan HA008)