WTI has just undergone a sharp correction, falling from the peak area of USD 93–94 per barrel to around USD 82 per barrel, equivalent to a decline of nearly 12% in only a few sessions.
The immediate catalyst was the United States’ decision to pause its attacks in order to create more room for negotiations with Iran.
The market responded immediately by removing part of the geopolitical risk premium that had been priced in over the previous weeks.
However, in my view, it is still too early to interpret this decline as a sign that risks in the Middle East have truly come to an end.
The suspension of U.S. military action has merely created a temporary pause, rather than a sufficiently credible agreement that can ensure oil supply and transportation return to normal.
Oil prices are falling faster than the physical market is improving. Much of the current sell-off appears to reflect the unwinding of defensive long positions and profit-taking following WTI’s strong rally. As the risk of further conflict temporarily eased, positions built around the scenario of severe supply disruption were reduced simultaneously. However, if negotiations fail to deliver meaningful results or military action resumes, oil prices could quickly enter another upward phase.
In the United States, inventories of crude oil, gasoline and distillate products have all increased recently, adding further pressure on WTI in the short term. However, stock levels across all three categories remain below their five-year averages, meaning this cannot yet be regarded as evidence of a sustained oversupply.
In the global market, supply may continue to recover if production and transportation activities in the Middle East gradually normalize, while the demand outlook remains relatively weak. As a result, the physical oil market may remain tight in the near term, but the risk of oversupply could increase toward the end of the year and into 2027 if Gulf supply returns faster than demand recovers.
In my view, WTI is entering a more challenging phase of price discovery. When prices were trading above USD 90 per barrel, the main drivers were fears of war and the risk of supply disruptions. Following the decline toward USD 82, the market is beginning to shift its attention to whether actual demand will be strong enough to absorb the supply that is gradually returning.
Overall, WTI’s short-term trend is now tilted toward further correction. However, the market has not completely eliminated the risk of renewed price increases. The current decline reflects a narrowing of the geopolitical risk premium more than a complete normalization of supply. Strong volatility is therefore likely to persist, while the more sustainable direction will depend on whether the market ultimately faces a supply shortage or an oversupply in the final months of the year.
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