Oil Market Outlook: WTI Hovering Near $86 as Markets Discount Escalation Despite Expiring Ceasefire

Written by Samer Hasn, Senior Market Analyst at XS.com

WTI crude oil declined by about 1% today, hovering near $86/bbl, while ICE Brent futures declined by a similar amount, trading around $94/bbl.

The decline in oil prices comes amid optimism that the war in the Middle East cannot be sustained much longer, even as the risk of renewed escalation rises.

Reports and leaks conflict on whether the ceasefire deadline, which ends tomorrow, will be extended. However, it seems the market is not pricing in further escalation, at least for now.

Trump is unlikely to extend the cease-fire as the deadline approaches. U.S.-Iran negotiations are proceeding as planned, with negotiators scheduled to travel to Pakistan this week. The U.S. and Iran aim to hold peace talks in Islamabad before the two-week cease-fire ends. A White House official indicates President Trump is not inclined to extend the cease-fire beyond Wednesday evening, when it expires, according to the Wall Street Journal. Trump has warned that failure to reach an agreement could result in strikes targeting Iran's bridges and power plants. There has been confusion about Tehran’s involvement, with some officials hinting they might skip the talks and Iran's chief negotiator stating negotiations are not acceptable “under the shadow of threats.”

Meanwhile, the WSJ also reported that Iran has informed regional mediators it will send a negotiating team to Pakistan this Tuesday, despite public claims from Tehran’s Foreign Ministry that no such plans existed. The decision arrives as a two-week ceasefire looms near its Wednesday expiration. While President Masoud Pezeshkian maintains that "Iranians do not submit to force," the looming deadline and Trump’s refusal to extend the truce have placed immense pressure on the upcoming talks in Islamabad.

On the other hand, the U.S. expressed confidence that peace talks in Islamabad are on track for Wednesday, even as Tehran remains officially non-committal, according to Reuters. A Pakistani source indicated that momentum is building and President Trump could participate if a deal is reached before the ceasefire expires Wednesday night. While White House Press Secretary Karoline Leavitt claims the U.S. is "on the brink of a deal".

In any case, what reinforces the hypothesis that the truce will collapse sooner or later is that ending the war in the current situation would constitute a defeat for Trump, given that his war has not achieved any of its strategic objectives, while Iran still retains the ability to fire the final shot in any conflict. Moreover, Iran has become even harder-line than before.

One of the goals Trump is trying to achieve is to gain control of its stockpile of highly enriched uranium buried deep inside mountains.

Meanwhile, Trump said the process of extracting the nuclear debris we destroyed in #Iran will be difficult and lengthy.

According to the WSJ, removing Iran's highly enriched uranium would likely be the "most complex uranium removal operation in history." Former Pentagon official Andrew Weber noted that the task is complicated by nuclear sites having been turned to rubble by previous strikes, creating significant logistical and security risks. Scott Roecker, a former nuclear removal director, estimated that even after the material is recovered from damaged tunnels, the packaging and extraction process alone "would be a very intensive effort that would take weeks."

This action may require the deployment of thousands of American troops on the ground for such an extended period, and this keeps the door open for further escalating mutual aggression.

This narrative would preserve some of the risk premium in the oil market and the risk of broader disruption to oil flows in the region as the war drags on, even though market pricing does not indicate significant pessimism about the war's duration.

USOIL Technical Outlook

On the 4-hour timeframe, USOIL is consolidating around the 0.236 Fibonacci level at 86.82 after a sharp rejection that formed the bearish order block (-OB) between 92.82 and 95.44. This downside move followed a period of volatility during which the asset failed to sustain its position above the Equilibrium range near 97.33 to 99.24.

On the upside, if USOIL breaks above the immediate Fibonacci resistance and continues its recovery, buyers may turn their attention to the -OB at 92.82 to 95.44 or the 0.5 level at 98.41.

On the downside, if the crude continues its current trend and breaks below local support, sellers may turn their attention to the Discount Zone anchored between 78.97 and 80.90. The commodity may head lower toward the bullish order block (+OB) at 73.64 to 75.24 to sweep liquidity before potentially finding the demand required to continue its broader bullish structure.

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Disclaimer: The chart reflects the analyst's opinion and does not constitute investment advice. Past performance is no guarantee of future returns. Seek independent advice before