WTI fell for a third straight day on Tuesday, trading near $89.10 a barrel and down 3.93% at the time of writing. Prices eased as markets weighed the chance of renewed US-Iran talks.
CNN reported that US officials may hold a second in-person meeting with Iranian representatives before a two-week ceasefire ends on 21 April. It follows earlier talks in Pakistan that did not produce an agreement.
US President Donald Trump said talks with Iran could take place in the coming days. This comes despite a US naval blockade targeting Iranian ports.
Markets see diplomacy as lowering the near-term risk of conflict that could disrupt energy supply. At the same time, disputes over Iran’s nuclear programme remain unresolved.
Attention also remains on the Strait of Hormuz, a key route for global oil exports. The area remains a source of risk for shipping and supply.
Rabobank said disruption around Hormuz could trigger a supply shock if restrictions worsen. It also said some refineries could face crude shortages if maritime traffic stays constrained, which could lead to fuel shortages and add to inflation pressure.
We recall a similar situation in mid-April 2025, when West Texas Intermediate crude fell toward $89 per barrel on hopes of a diplomatic breakthrough between the US and Iran. This optimism proved to be short-lived, serving as a critical lesson for the current market. Today, with WTI trading higher at around $95.50, we see parallels that warrant a cautious approach.
The brief diplomatic optimism in 2025 was a trap for those positioned for lower prices. When the two-week ceasefire expired on April 21, 2025 without a durable agreement, WTI prices rallied over 10% in less than a week. We are now facing another round of preliminary discussions, and the market should not underestimate the potential for a similar breakdown in talks.
This time, the underlying physical market is even tighter, adding to the upside risk. The most recent Energy Information Administration (EIA) report showed a surprise crude inventory draw of 2.1 million barrels, against expectations of a build. This indicates strong demand and limited supply-side cushion should a geopolitical disruption occur.
Given the precedent from 2025, traders should consider buying call options to protect against a sudden price surge. For example, purchasing May contracts with a strike price around $100 offers exposure to significant upside at a defined cost. This acts as a form of insurance against a repeat of last year’s sharp rally.
For those looking to reduce the upfront cost of this insurance, bull call spreads are an attractive strategy. By simultaneously buying a call option (e.g., the May $100) and selling a higher-strike call (e.g., the May $105), traders can position for a moderate price increase while significantly lowering their premium outlay. This approach defines both the risk and the potential reward.
The uncertainty has pushed the Cboe Crude Oil Volatility Index (OVX) up, which now sits near 38, indicating heightened market anxiety. This elevated implied volatility makes selling options premium a risky but potentially rewarding strategy for those who believe tensions will again de-escalate without a major supply disruption. However, we remember how quickly that sentiment reversed last year.
