$CL Crude oil plummets over 14%: Short-term bears, don't rush; mid-term beware of being caught by fundamentals
Conclusion: Stay bearish in the short run, but don't chase the shorts; wait for a rebound to enter. In the mid-term, strong fundamentals could blow up the shorts at any moment, so keep your positions light.
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1. Why the sharp decline? — Geopolitical and peace premiums are fading
The core driver of this crash is the progress in US-Iran negotiations and rising expectations for navigation in the Strait of Hormuz.
Since the peak on May 18, WTI has seen a maximum drop of over 15%, with Brent over 14%, hitting lows of $89.41 and $93.21 respectively. On May 25, WTI opened with a gap down and at one point plummeted by 7.44%; although it regained some losses by close, the bear attack was already clear.
Why the rapid drop? Because it rose just as quickly before.
For the past three months, the market has been pricing in a “blockade of the Strait of Hormuz” — oil prices peaked above $105. Now, signals from the negotiation table suggest a possible framework agreement for extending the ceasefire and lifting the blockade. If this materializes, about 14 million barrels of supply will gradually flow back into the market daily. Once this expectation hit, the bulls collectively took profits, and the market simply couldn't handle it.
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2. Can we short? — Yes, but with timeframes and strategies
Strategy | Action | Position
Short-term | Enter shorts when rebounds are weak, take profits when declines are weak | 1-2%
Mid-term | Fundamentals do not support deep declines, not recommended to chase shorts | Watch and wait
The logic for short-term bears is to follow geopolitical sentiment: as long as there are updates on negotiations, the market will continue to digest the peace premium. Shenwan Hongyuan also clearly stated, “In the short term, treat highs with a bearish bias.”
But don’t be overly bearish in the mid-term: Why? The fundamentals are working against you.
The latest EIA inventory data shows a significant drop of 7.86 million barrels in crude oil inventories last week, far exceeding the expected 2.5 million barrels, marking the third consecutive week of substantial drawdowns. Global monitored crude oil inventories decreased a total of 246 million barrels in March-April, with OECD countries seeing a record decrease of 14.6 million barrels in land inventories in April alone.
The supply-demand gap is clear: the supply side is down by about 13 million barrels daily, and although high oil prices have slightly suppressed demand, the decline is nowhere near the reduction in supply. Brent around $90 has support under the current fundamental framework.
#USCryptoMarketStructureBillFacesUncertainty $CL