WTI pulled back after rising more than 3% in the previous session, trading around $91.90 a barrel during Asian hours on Wednesday, as markets assessed prospects for progress towards a US-Iran peace agreement. Price action was also shaped by uncertainty over the Strait of Hormuz, after the US military said it carried out self-defence strikes in southern Iran and Iran’s Revolutionary Guard stated it had targeted an American F-35 fighter jet and several drones it said breached Iranian airspace.
Iran’s foreign ministry condemned the US strikes in Hormozgan province as a “gross violation” of a fragile, seven-week-old ceasefire, following Iranian media reports of explosions early on Tuesday. The flare-up risks undermining work towards a memorandum of understanding intended to halt the wider conflict and lift blockades to restore shipping, with any initial deal envisaging a 60-day window to tackle harder issues, including Iran’s nuclear programme. Saudi Arabia, Qatar and the United Arab Emirates have urged President Donald Trump to prioritise diplomacy, while Secretary of State Marco Rubio said a final agreement could still take several days, with disputes over Tehran’s frozen assets and guarantees of unrestricted maritime passage through the Strait of Hormuz.
Volatility And Uncertainty In WTI Crude Oil
We’re seeing WTI crude hold steady around $82 a barrel, caught between bearish diplomatic whispers from Iran and bullish military posturing. This binary setup, with a peace deal on one side and a major conflict on the other, is creating significant underlying tension. The market is coiling for a big move, but the direction is anyone’s guess.
Given this uncertainty, we believe the smart play is to buy volatility rather than betting on a direction. The CBOE Crude Oil Volatility Index (OVX) is currently trading near 32, which seems too low for a situation that could escalate overnight. We are positioning for a sharp price swing, regardless of whether it’s up or down.
Trading Strategies Amid Geopolitical Risk
We are looking at out-of-the-money strangles on July and August contracts, which will profit from a significant price move in either direction. This strategy lets us capitalize on the impending breakout without needing to correctly predict the outcome of the US-Iran standoff. The goal is to own options that will benefit from the inevitable spike in volatility.
Beyond the geopolitical noise, the fundamentals are already tightening, which supports the case for higher volatility. Last week’s EIA report showed a surprise crude inventory draw of 3.1 million barrels, and OPEC+ seems committed to holding its production cuts through the third quarter. These factors create a floor under the price, making any escalation in the Strait of Hormuz even more explosive.
We only need to look back at the initial weeks of the 2022 conflict in Ukraine, when Brent crude rocketed from $95 to nearly $140, to see how quickly these situations can re-price the market. A full-blown conflict could easily send prices well over $110, while a credible peace deal could see them drop below $70. The current price does not reflect this massive potential range.
