Oil fell despite renewed Middle East tensions as traders focused on uninterrupted supply flows and mixed U.S. inflation data. With the FOMC looming and rate-hike risks lingering, bearish technicals kept crude under pressure.
Despite a lack of clear signals from the U.S. and Iran regarding the clinching of a peace deal, the West Texas Intermediate (WTI) crude oil futures plunged on Friday. The 3%+ retreat on Friday has positioned the commodity on track to close at the lowest level since April 22.
The CL contract has been tracing a downtrend since hitting a near-term top of $109.47 (intraday) on May 18 as Iran war headlines that went on to suggest that a deal could be in the offing proved bearish for the commodity.
The crude oil market began the week on a firm footing as Israel and Iran exchanged fire after Israel struck Iranian energy infrastructure, marking the most significant breach of the ceasefire brokered in April. Although prices retreated on Tuesday, tensions escalated again after Iran reportedly shot down a U.S. surveillance helicopter, helping lift crude on Wednesday.
Despite the geopolitical backdrop, oil came under renewed pressure on Thursday and appears headed for a weekly loss. The pullback has puzzled some market participants, given the conflicting signals from U.S. President Donald Trump regarding Washington's approach to the conflict and Iran's continued confrontational stance.
Supply Flows Trump Headlines
The market's reaction suggests traders are increasingly focused on the absence of a meaningful supply disruption rather than the headlines themselves. As long as oil flows remain largely unaffected, geopolitical risk premiums may struggle to gain traction despite periodic flare-ups in the region.
Mixed Inflation Data Muddy the Macro Picture
Beyond geopolitics, macroeconomic developments have also weighed on crude this week. Markets spent much of the past several sessions digesting a mixed batch of U.S. inflation data. While the latest inflation-adjacent indicator (/news/spacex-effect-could-elon-musks-rocket-company-shake-up-the-nasdaq) offered some relief after earlier upside surprises in consumer (/news/us-may-cpi-3-year-high-energy-core-tame) and producer prices, they were not sufficiently dovish to fundamentally alter expectations for Federal Reserve policy.
As a result, concerns that higher interest rates could restrain economic activity and energy demand have eased somewhat, but they have not disappeared altogether.
FOMC Meeting introduce Caution
With the Federal Open Market Committee (FOMC) set to meet next week, traders appear reluctant to aggressively rebuild long positions in crude despite the ongoing tensions in the Middle East.
The focus now shifts to whether Fed officials reinforce the view that rates will remain elevated for longer or signal greater confidence that inflation is moving sustainably toward target. Any indication that policymakers are becoming more comfortable with the disinflation process could support the broader growth outlook and, by extension, oil demand expectations. Conversely, a hawkish message could reinforce concerns about slowing economic momentum and keep pressure on energy markets.
Futures market pricing suggests the Federal Reserve may not be done tightening just yet. While a rate pause is widely expected at both the June 16–17 and late-July FOMC meetings, the probability of a rate hike increases further out the curve. According to market-implied odds, the chances of a hike stand at roughly 27.3% for September, 36.8% for October, and 57.6% by December, indicating investors still see a meaningful risk of additional tightening before year-end. The odds of a December hike, in fact, pared from last week following the week’s mixed inflation prints.
Market Braces for Hikes and Not Cuts
Source: CME FedWatch Tool
From a technical standpoint, Friday's decline has pushed the front-month CL contract toward its lowest settlement since late April, extending the series of lower highs and lower lows that has been in place since the May peak near $109.50. The inability of geopolitical flare-ups to generate sustained upside momentum is likely to be viewed as a bearish signal by traders.
Crude Caught in Bear Wave
Source: TradingView
A weekly close below the psychologically important $85 level would reinforce the near-term downtrend and open the door to a test of support in the $82-$83 region, followed by the April lows (around $80). On the upside, bulls would need to reclaim the 100-day simple moving average (around $86) level to suggest that downside momentum is fading, while a move above the descending trendline resistance from the May highs would be required to shift the technical outlook back to neutral.