WTI crude oil futures are wrapping up a volatile week with the market trading at $62.99, down $2.22 or -3.40%. With one day left before the week ends, the primary driver of the choppy trade has been the reduction of the risk premium after reports on Thursday said the United States and Iran were talking.
Monday’s Plunge Sets the Tone
The week started with a sharp selloff on Monday after President Trump said over the weekend that Washington and Tehran were in discussions. The news caught the market off guard and triggered immediate profit-taking from traders who had been positioning for a potential supply disruption in the Middle East. Oil prices dropped more than 4% in the session as the geopolitical risk premium evaporated almost overnight.
The selloff was aggressive enough to push prices to their lowest level since January 20, forcing weak longs out of the market and resetting expectations about where oil should trade in a less hostile environment.
Wednesday’s Rally on Collapsing Talks
Just when traders thought the diplomatic path was clearing, Wednesday brought a complete reversal. A media report suggested that talks between the U.S. and Iran could collapse, reigniting fears of a wider confrontation in the region. The news came on the heels of rising tensions in the Strait of Hormuz, where the U.S. Navy shot down an Iranian drone earlier in the week.
That incident reminded the market why the risk premium existed in the first place.
