Oil stabilises on diplomacy hopes, yet structural risks persist: Analyst

Crude Oil: A market one headline away

For years, oil markets followed a familiar pattern during geopolitical tensions: prices jumped on the initial shock, traders expected alternative supply routes to emerge, and the risk premium eventually faded. But the closure of the Strait of Hormuz in late February changed that pattern completely. By March, the oil market was no longer just reacting to fear, it was reacting to a genuine supply crisis. WTI Crude surged 51 per cent through the month, Brent 43 per cent, as the scale of the supply removal became clear. Iraq, Saudi Arabia, Kuwait, the UAE, Qatar and Bahrain collectively curtailed an estimated 10.5 million barrels per day of output. The IEA deployed the largest emergency stockpile release in its history, 400 million barrels, and immediately cautioned that reopening the strait was the only durable solution.

 

 

The clearest sign of stress was not just the price rally, but the gap between physical and paper markets. In early April, physical Brent cargoes traded near $144 per barrel while Brent futures were around $110, an extraordinary $34 premium. That meant buyers were scrambling for actual barrels, while futures traders were still betting the crisis would eventually ease.

 

As April progressed, futures prices caught up with physical reality. Brent futures rose toward $126 while Dated Brent had retreated from its panic highs, the two benchmarks converging around $122, the spread collapsing from $34 to near zero. That convergence is the analytical hinge of the entire episode. It was not physical supply easing, the strait remained closed, the blockade intact. It was the futures market conceding. The moment traders stopped pricing a crisis with an endpoint and started pricing a condition without one. Brent ended April roughly 4 per cent lower, WTI marginally higher, unremarkable monthly moves that obscured a profound shift in market psychology underneath.

 

Now in May, the market narrative has shifted again, from supply panic to diplomacy. Reports of a possible US-Iran agreement involving sanctions relief and a framework for reopening Hormuz triggered a sharp 7 per cent drop in oil prices in a single session. The risk premium built over weeks unwound in hours, before partially rebuilding when Iranian officials rejected the proposal outright, demanded reparations, and declared Iran's enrichment programme non-negotiable. Oil prices have since softened further with WTI now near $97.5, Brent spot around $106.8, both benchmarks down 4-5 per cent month-to-date as traders price increasing probability of some form of resolution.

 

The physical market, however, tells a more sobering story. As of May 12th, Dated Brent traded at $111 against futures at $107.8 — a $3 premium, a fraction of the $34 that defined the April crisis. That compression is not comfort. It is evidence that physical scarcity has been absorbed through demand destruction, rerouted supply and emergency reserve injections, not through any genuine resolution of the underlying conflict.

 

The calm, however, may be deceptive. Trump has described the ceasefire as being on "massive life support," meeting with his national security team to weigh a potential return to military operations. Iran is demanding the US lift its naval blockade and provide sanctions relief while retaining control over Hormuz traffic, conditions Washington has shown little appetite to accept. The relief that temporary measures provided is finite.

 

For now, WTI is likely to trade within a broad $92–$115 range, with any credible diplomatic breakthrough or deterioration capable of triggering sharp moves in either direction. Technically, Brent holding above $100 keeps the structure supported, but that support is political, not fundamental. The physical premium has nearly exhausted itself. The ceasefire is intact but fragile. But this is still not a stable market. A market that can move 7 per cent in a single session on a single news report is not calm, it is simply waiting for its next trigger.

 

MCX Crude Oil on the daily chart is consolidating within a symmetrical triangle pattern, indicating a phase of compression after the recent volatile swings. Prices are currently trading near the ₹9,650 zone and attempting to stabilise above the rising support trendline, reflecting improving short-term sentiment. The broader structure remains neutral-to-positive as long as the contract sustains above the ₹8,800–9,000 support region. RSI is hovering near the mid-range, suggesting balanced momentum with room for a directional breakout. A decisive move above the descending resistance near ₹10,000 could trigger fresh bullish momentum toward ₹10,500–11,000 levels. Overall, traders may expect heightened volatility ahead of a breakout confirmation.

 

In many ways, the technical structure mirrors the broader fundamental backdrop, a market compressed between two very different outcomes. If diplomacy produces even a partial framework for reopening Hormuz, the triangle likely resolves lower and WTI could revisit the low-$90s quickly as the remaining geopolitical premium fades. But if negotiations collapse or military tensions return, the breakout could be violently upward, bringing back the kind of panic pricing seen during April’s supply shock. The next major move in crude is unlikely to be gradual. This remains a market where a single headline, a diplomatic breakthrough, a military escalation, or a policy reversal, can move prices 7 per cent in a matter of hours. The only uncertainty is the direction of that move.

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(Disclaimer: This article is by Kaynat Chainwala, AVP - Commodity Research, Kotak Securities. Views expressed are her own.)