Brent crude fell about 2% to USD 109.8 per barrel in early Asian trading after President Trump paused a planned large-scale strike on Iran to allow negotiations. Iran sent a new response to the latest US proposal via Pakistan, while mediators said the ceasefire was “on life support”.
Trump said the US remains ready to act if talks fail. The market reaction followed a recent pullback in prices.
Market Moves And Diplomatic Signals
Washington extended a US sanctions waiver on Russian seaborne crude, which supported physical supply. Record US reserve draws pushed inventories to two-year lows, leaving oil prices sensitive to any renewed escalation involving Iran.
We remember how Brent crude fell to nearly $110 per barrel last year after President Trump paused a strike on Iran, showing the market’s immediate reaction to de-escalation. That event established a clear pattern where prices are driven more by diplomatic headlines than by immediate supply figures. The current ceasefire talks, described as being on “life support,” create a similarly tense backdrop for trading today.
The market’s underlying tightness is more severe now than it was in 2025. Last week’s EIA report showed US commercial crude inventories unexpectedly fell by 4.2 million barrels, pushing stockpiles approximately 5% below the five-year average for this time of year. With the Strategic Petroleum Reserve at its lowest level since 1983, there is very little buffer to absorb any real or perceived supply shock.
Given this low inventory environment, any renewed conflict could cause a price spike well beyond what we saw last year. Traders should consider buying near-term call options to capitalize on the high probability of volatility. For instance, with Brent currently trading around $118, calls with a $125 strike price could offer significant upside if talks collapse completely.
Risk Management For Both Outcomes
However, the memory of last year’s sudden 2% drop on negotiation news means hedging against peace is equally critical. A surprise agreement with Iran could send prices tumbling back towards $110. To manage this risk, traders could use put spreads to protect against a sudden downturn without the high cost of buying puts outright.
The extension of the sanctions waiver on Russian seaborne crude, which helped stabilize supply in 2025, is now facing renewal next month with less certainty. Current geopolitical strains mean a non-renewal is a distinct possibility, which could remove over a million barrels per day from the market. This adds another layer of potential upward pressure that traders must factor into their strategies for the coming weeks.
