WTI Crude Oil Futures (August Futures)

Yesterday’s Settlement: 68.51, -5.33 [-7.22%]

Yesterday, WTI Crude Oil’s trading range was historic. Outside of 2020, the 13.62% range was the 16th largest in history, going back to 1990. The sharp sell-off was somewhat surprising.

Iran responded to weekend strikes through scripted and seemingly muted retaliations against US bases in Qatar. The weak nature of Iran’s response and the market’s assumption that this conflict is over led to sharp selling.

It’s not abnormal for Crude oil to sell off after some geopolitical risks are realized, but the surprise attacks over the weekend and the size of yesterday’s sell-off were quite surprising.

We have no word yet that this conflict, or Iran’s retaliation, is officially over. We also have no official word yet on whether the regime will move to block the Strait of Hormuz, which their congress voted to do early Monday morning.

Today, -2.42 [-3.53%] to 66.09

Oil prices fell overnight after President Trump declared a ceasefire between Israel and Iran. Despite both sides violating the supposed ceasefire, futures are trading lower this morning.

The macro environment is trading risk-on, as the drop in oil eases re-inflation fears. Equity futures are higher, and once again, the dollar is weaker.

At these levels, WTI futures look cheap on a fundamental basis without incorporating an elevated level of risk-premium additions to the front-month contracts. Also, while spreads have narrowed, both WTI and Brent crude oil remain in backwardation as markets remain tight in the near term.

Some capitulation and margin selling may come through at the open to drive this thing lower, but a bottom should be nearing.

I have not seen word that Iran or Israel will abide by the ceasefire, and there’s an outside chance these countries continue to trade blows.

Volatility breeds volatility. Expanded ranges and sharp intraday volatility should be expected through today’s session.

Data Releases:

N/A

Technical Analysis:

Yesterday’s price action was historic, and the ripple effects are likely to continue for the next couple of days. Until we settle back into a trading range, gauging the risk-reward on short/medium-term trades will be difficult.

The good news is that option premiums have come back down to earth, especially in the calls. Yesterday, implied volatility and the call skew were whacked, which opens up some risk-defined opportunities to the upside.

For intraday trading, our pivot and point of balance is set at….

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