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Energy Markets React to Potential US-Iran Breakthrough
Oil and gas markets sold off aggressively on Wednesday after reports emerged that Iran is considering a new US proposal aimed at easing tensions and restoring flows through the Strait of Hormuz.
Brent crude briefly fell below $100/bbl, while WTI crude dropped sharply as traders priced out some of the geopolitical risk premium that had built into the market over recent weeks. European natural gas prices also declined as fears of a prolonged disruption to Middle Eastern energy exports eased.
By Thursday morning, however, oil prices had stabilised near the $100 level after an almost 8% one-day decline, highlighting that traders remain cautious despite improving headlines.
The proposed framework reportedly includes a phased reopening of Hormuz and the easing of US restrictions on Iranian port access. While no agreement has been finalised, the market is beginning to price in the possibility of additional supply returning to global markets over the coming months.
Still, this remains a headline-driven environment, and volatility is likely to stay elevated.
US Inventory Data Adds Mixed Signals
The latest EIA inventory report showed US crude stockpiles fell by 2.3 million barrels last week. While supportive on the surface, the draw was slightly smaller than market expectations and far below the API’s earlier estimate of an 8.1 million barrel decline.
A key reason for the smaller draw was a sharp drop in exports, which fell by 1.7 million barrels per day week-on-week after hitting record highs previously.
Additional highlights from the report included:
- Crude imports declined by 273k b/d
- Refinery utilisation increased modestly
- Cushing inventories fell by 648k barrels
- Gasoline inventories dropped by 2.5 million barrels
- Distillates declined by 1.3 million barrels
Overall, the data suggests underlying US demand remains relatively firm, although elevated fuel prices could eventually begin weighing on consumption.
OPEC Production Remains Constrained
Despite the market sell-off, supply conditions remain historically tight.
According to Bloomberg’s latest OPEC survey, cartel production fell by 420k b/d month-on-month to 20.55m b/d — the lowest level since 1990.
The largest declines came from:
- Kuwait: -470k b/d
- Iran: -180k b/d
War-related disruptions and constrained export routes through Hormuz continue to impact production and shipping flows across the region.
This is one reason traders remain hesitant to fully unwind bullish positioning despite improving diplomatic headlines.
WTI Technical Analysis: Two Key Scenarios Traders Are Watching
Bullish View: Elliott Wave Triangle Completion Could Trigger Breakout
From a technical perspective, one bullish interpretation is that WTI crude may be completing a large Elliott Wave triangle pattern.
The structure appears to show a contracting ABCDE formation, with price respecting converging trendlines over the past several weeks. Under this scenario, the recent sell-off into wave E could represent the final shakeout before a directional breakout higher.
RSI has also moved toward oversold territory on the 4-hour timeframe, which may suggest downside momentum is becoming exhausted.
If buyers regain control, traders will likely watch for:
- A reclaim of the $100-$102 area
- Break above recent lower highs
- Momentum confirmation from RSI recovery
A confirmed breakout from the triangle could open the door toward a retest of the April highs near the $115-$118 region.
In Elliott Wave theory, triangle patterns often occur before the final impulsive move in the direction of the broader trend, meaning bulls will argue the larger uptrend remains intact unless support decisively breaks.
Bearish / Sideways View: Larger Flat Correction Still In Play
The alternative interpretation is that oil may simply be transitioning into a broader sideways corrective structure rather than preparing for an immediate breakout.
Under this scenario, the recent highs and lows could form part of a larger flat correction, where price continues chopping within a wide range before establishing clearer direction.
This view gains credibility if:
- Price fails to reclaim the psychological $100 level convincingly
- Momentum remains weak
- Macro headlines continue reducing geopolitical risk premiums
A prolonged consolidation phase could keep WTI trapped between roughly $76 and $118 while traders wait for stronger fundamental catalysts.
The recent drop also broke short-term momentum structure, suggesting buyers may need time to rebuild positioning before any sustained trend continuation occurs.
For swing traders, this environment may favour range-trading strategies rather than aggressive breakout positioning until clearer confirmation develops.
Natural Gas Remains Under Pressure
US natural gas prices also remain weak, with Henry Hub hovering near $2.7/MMBtu.
Markets continue to be pressured by:
- Weak LNG feedgas demand
- High storage levels
- Softer summer demand expectations
- Reduced geopolitical premium
The market currently expects another sizeable storage build in the upcoming EIA release, reinforcing the bearish near-term outlook for gas prices.
Final Thoughts
Energy markets remain highly reactive to geopolitical headlines, and the next move in crude oil could depend heavily on developments surrounding US-Iran negotiations.
For now, traders are balancing two competing narratives:
- Improving diplomacy that could restore supply and pressure prices lower
- Ongoing structural tightness and technical setups that still support bullish continuation risk
From a chart perspective, WTI sits at an important technical crossroads. Whether this resolves into a bullish Elliott Wave triangle breakout or a prolonged sideways flat correction will likely shape trading conditions over the coming weeks.
As always in volatile commodity markets, confirmation matters more than prediction.
