Crude oil futures reversed sharply lower by Thursday after beginning the week with a strong rally fueled by optimism over a temporary easing in U.S.-China trade tensions. Prices initially surged more than 4% as both countries agreed to suspend certain tariffs for 90 days, rekindling hopes for improved global trade flows and stronger oil demand.

However, the bullish tone quickly faded midweek, replaced by heavy selling pressure tied to rising supply risks and bearish geopolitical signals. The shift in market sentiment underscores just how fragile the demand narrative remains, particularly when potential supply surges threaten to tip the market out of balance.

The reversal highlights how sensitive oil markets remain to broad policy changes. What began as a sentiment-driven bid quickly turned into a risk-off move as traders recalibrated positions in response to mounting supply headwinds and softening consumption indicators.

Prospects of Iranian Crude Return Rattle Market Sentiment

The biggest blow to the bullish case came from renewed expectations that the U.S. and Iran could soon strike a nuclear agreement. President Trump stated that the two sides were “very close” to a deal, while Iranian officials signaled a willingness to negotiate in return for sanctions relief.

Such a development would clear the path for additional barrels to re-enter the market. Analysts estimate that as much as 800,000 barrels per day of Iranian crude could become available…

Crude oil futures reversed sharply lower by Thursday after beginning the week with a strong rally fueled by optimism over a temporary easing in U.S.-China trade tensions. Prices initially surged more than 4% as both countries agreed to suspend certain tariffs for 90 days, rekindling hopes for improved global trade flows and stronger oil demand.

However, the bullish tone quickly faded midweek, replaced by heavy selling pressure tied to rising supply risks and bearish geopolitical signals. The shift in market sentiment underscores just how fragile the demand narrative remains, particularly when potential supply surges threaten to tip the market out of balance.

The reversal highlights how sensitive oil markets remain to broad policy changes. What began as a sentiment-driven bid quickly turned into a risk-off move as traders recalibrated positions in response to mounting supply headwinds and softening consumption indicators.

Prospects of Iranian Crude Return Rattle Market Sentiment

The biggest blow to the bullish case came from renewed expectations that the U.S. and Iran could soon strike a nuclear agreement. President Trump stated that the two sides were “very close” to a deal, while Iranian officials signaled a willingness to negotiate in return for sanctions relief.

Such a development would clear the path for additional barrels to re-enter the market. Analysts estimate that as much as 800,000 barrels per day of Iranian crude could become available if sanctions are lifted. For a market still digesting incremental increases from OPEC+ producers, the potential return of Iranian supply added a significant layer of bearish pressure to an already fragile equilibrium.

Several analysts flagged that even a partial lifting of sanctions would quickly add export capacity, particularly to China, where Iranian barrels have continued to flow at reduced levels. A full reinstatement of Iran’s export capability would directly challenge OPEC+ efforts to manage global balances.

Surprise Inventory Build Signals Weaker-Than-Expected Demand

Further compounding the downside pressure, U.S. crude inventories posted a surprise increase last week, according to official Energy Information Administration (EIA) data. Stockpiles rose by 3.5 million barrels, in sharp contrast to consensus forecasts for a draw. Total inventories now stand at 441.8 million barrels, suggesting either stronger import flows or softening domestic demand.

This followed earlier data from the American Petroleum Institute (API), which also reported a larger-than-expected build of 4.3 million barrels. While gasoline and distillate stocks declined, pointing to seasonal drawdowns ahead of the driving season, the overall crude build dominated trader sentiment and reinforced concerns that supply may be outpacing demand in the near term.

Rising inventories often serve as a warning signal to traders, especially when not accompanied by refinery maintenance or expected seasonal bottlenecks. The persistence of crude builds could cap any upside attempts in the coming weeks unless product demand rises sharply.

OPEC and IEA Offer Conflicting Supply-Demand Signals

Market participants also digested a fresh round of reports from OPEC and the International Energy Agency, which sent mixed signals on the outlook for crude fundamentals. The IEA raised its global oil demand growth estimate for 2025 by 20,000 barrels per day to 740,000 bpd, citing stronger-than-expected economic activity and lower prices encouraging consumption.

However, the agency also flagged headwinds for the remainder of the year, citing economic pressure and rising electric vehicle sales that could temper consumption. At the same time, OPEC lowered its supply growth expectations from non-OPEC+ countries, even as the broader OPEC+ alliance continues to raise output. The diverging views have added uncertainty to the long-term supply-demand picture, leaving traders to focus on more immediate inventory and geopolitical drivers.

The market’s ability to absorb additional supply remains in question, especially as refinery runs increase and global product stocks begin to tighten. Yet that underlying tightness has not been enough to offset fears of a near-term crude oversupply.

Weekly Light Crude Oil Futures

Trend Indicator Analysis

The main trend is down according to the weekly swing chart. A trade through $64.87 will change the main trend to up. A trade through $54.48 will signal a resumption of the downtrend.

The long-term range is $52.45 to $84.90. Its 50% level is $68.67. This is major resistance. Trading on the bearish side of this key level is a sign of weakness. Additional resistance is the 52-week moving average at $68.40.

The short-term range is $71.64 to $54.48. Its pivot at $63.06 is resistance. This week, traders should respect for this level, first breaking out to $63.90 before falling back below it into Thursday’s close.

The minor range is $64.87 to $55.30. Its pivot is $60.09. The market is currently on the strong side of this level but it needs to hold above it to maintain the current momentum. Trader reaction to $60.09 is likely to set the tone next week.

Weekly Technical Forecast

The direction of the Weekly Light Crude Oil Futures market the week ending May 23 is likely to be determined by trader reaction to $60.09.

Bullish Scenario

A sustained move over $60.09 will signal the presence of counter-trend buyers. If this creates enough momentum, we could see a possible near-term rally into the major pivot at $63.06 again. This is the last potential resistance before the main top at $64.87 and the trigger point for a change in trend and an upside breakout.

Bearish Scenario

A sustained move under $60.09 will indicate the presence of sellers. This will leave the market vulnerable to another plunge into the value zone at $55.30 to $54.48. This is followed by a multi-month low at $52.45. If this level fails then look out to the downside.

Market Outlook: Bearish Tone Strengthens as Supply Risks Mount

The crude oil market has shifted to a decisively bearish stance as supply risks and geopolitical developments override earlier demand optimism. Expectations of a U.S.-Iran deal and a surprise U.S. crude stock build have weakened the bull case that had been supported by tariff relief and refined product demand.

With traders pricing in the possibility of more Iranian crude hitting global markets, and OPEC+ showing no signs of slowing supply increases, the near-term outlook suggests additional downside pressure. While refined product draws and slowing non-OPEC+ growth offer potential medium-term support, the immediate tone favors caution. Crude bulls will likely remain on the sidelines until clearer signs of tightening reemerge.

Unless new supply restraints emerge or policy headlines unexpectedly support demand, the broader tone is likely to remain defensive.

Technically, we’re looking at two key levels:  $63.06 and $60.09. Holding between these levels will create a choppy, rangebound trade.

The resistance at $63.06 is also the trigger point for an acceleration to the upside. The support at $60.09 controls the downside direction and momentum.