Trading the Crude Oil Bounce
Trading the Crude Oil Bounce
EIA numbers bolster the outlook as geopolitical tension fades and inventory drops to a multi-year low
- Crude oil prices moderated after Israel and Iran announced a ceasefire.
- Sentiment for the oil market is shifting from geopolitical concern to a fundamental outlook.
- Prices offered possible support around the April and May swing high levels.
Crude oil prices (/CLQ5) bounced today after heavy selling from earlier in the week after President Trump announced a ceasefire between Israel and Iran.
Oil volatility surged earlier this month when Israel launched a military operation to target Iran’s nuclear infrastructure, with traders fearing supply disruptions would materialize.
Those fears quickly dissipated following the ceasefire, which undid much of the gains seen since June 13 when the war started. Prices rose as high as $78 per barrel after the US joined the war to bomb nuclear facilities in Iran. However, prices started to slide after Iran responded by targeting US forces in the region instead of targeting the Strait of Hormuz.
The geopolitical premium that has gone as quickly as it came now leaves the oil market returned to its focus on fundamentals. Those fundamentals shifted to an increasingly bullish position following the Energy Information Administration (EIA) weekly inventory report that crossed the wires this morning.
The EIA reported a 5.8 million barrel decrease in inventory for the week ended June 20. That was well below the expected decrease of about 750,000 barrels that analysts forecasted. This brought total commercial stockpiles, excluding those in the Strategic Petroleum Reserve (SPR), to about 415 million barrels.
That inventory draw saw stockpiles drop below levels usually seen this time this year — in fact, it was the lowest seasonal number since 2014. Over the same reporting period, gasoline and distillate fuel stocks dropped. Gasoline supplied, a proxy for demand, also rose to its highest level since 2021. This indicates that driving demand in the US is strong as we approach the July 4 holiday when demand typically peaks for the summer.
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Trading crude oil after the dip
The pullback in prices after the evaporation of geopolitical risk premiums presents an opportunity for traders to get long on the fundamental outlook. The late
April swing high and May swing high around 63.50 offer a likely zone of support for the commodity.
Given that volatility is lingering after the last week of price action, traders who are looking to get long can get a beneficial risk profile by selling a put spread to play a neutral to bullish move. Selling a put vertical with the short option around the April and May swing high levels provides one attractive way to play this outlook.
Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater
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