Crude prices edged lower on Thursday as markets took comfort from expectations of a US–Iran peace agreement and the prospect of toll-free passage through the Strait of Hormuz. US benchmark West Texas Intermediate (WTI) touched a three-month low of $73.36 a barrel and was heading for a weekly drop of more than 10%. The agreement, signed by US President Donald Trump and Tehran in France on Wednesday, includes provisions for safe transit through Hormuz in return for waivers of sanctions on Iranian oil, the release of frozen Iranian funds, and a USD 300 billion reconstruction fund to address war damage.

Switzerland’s Ministry of Foreign Affairs said talks between US and Iranian representatives will continue on Friday at the Bürgenstock resort, where negotiations are expected to move towards implementation. Separately, the US Energy Information Administration (EIA) reported that commercial crude inventories fell by 8.26 million barrels in the week to 12 June, compared with expectations for a 4.6 million-barrel draw. The EIA said this marked a tenth consecutive weekly decline and left stockpiles at their lowest level in more than 40 years, though prices showed little response.

Short-Term Downside For Crude Prices

With the market now pricing in the return of Iranian oil, we believe the path of least resistance for crude prices is lower in the immediate term. The reopening of the Strait of Hormuz is a significant de-risking event, removing a major geopolitical premium that has been embedded in prices for years. Historically, the 2015 JCPOA deal saw oil prices fall by over 30% in the six months that followed as the market anticipated new supply.

Given this outlook, we are looking at buying put options to profit from further downside over the next few weeks. The market’s sharp reaction suggests high implied volatility, so we are also exploring put spreads to lower the entry cost of these positions. The target is the low $70s, as a full return of Iranian barrels could add over 1 million barrels per day to global supply within months.

Inventory Tightness And Longer-Term Bullish Factors

However, we cannot ignore the critically low U.S. inventory levels, which are now at their lowest in over four decades. This fundamental tightness is a coiled spring, made more significant by the U.S. Strategic Petroleum Reserve also sitting near 40-year lows of around 370 million barrels. The market is currently choosing to overlook this bullish fact in favor of the geopolitical news.

This disconnect creates a compelling longer-term opportunity for when the focus shifts back to the physical market. We see value in purchasing out-of-the-money call options dated three to six months from now, which are currently cheap due to the drop in spot prices. If the implementation of the Iran deal faces delays or if demand remains robust, these positions could see substantial gains.

Summer demand trends also support this underlying bullish case, as consumption typically rises during the peak driving season. Strong recent purchasing manager data from China and India suggests global demand remains resilient, which will continue to draw down these already-low stockpiles. This fundamental pressure will eventually have to be reconciled with the price.