WTI steadied around $85.00 a barrel in Asian trading on Friday after sliding more than 5.5% the previous day, as comments from US President Donald Trump fuelled expectations of a possible peace agreement with Iran as soon as this weekend. The shift followed his decision to delay planned military strikes after earlier warnings that US action could extend to Iran’s energy infrastructure. No final text has been approved, but Iran’s semi-official Fars news agency reported Tehran is likely to accept a deal that Trump said would reopen shipping lanes through the Strait of Hormuz and include commitments to forgo nuclear weapons.
Traders remained cautious as restoring global oil flows would still require clearing naval mines, restarting idled fields and repairing facilities damaged by drone and missile attacks. The security picture also stayed contested: on Wednesday, the US military said on X that commercial vessels were transiting safely and denied any US warships had been hit, while Iranian state media claimed US ships were targeted by missiles and drones. Separately, LSEG and Kpler data showed three additional LNG tankers leaving the strait for Asia with transponders turned off, while India reported a vessel incident off Oman’s Port of Shinas on Thursday, the third this week; Indian refiners told Reuters they had enough crude through at least August.
Market Volatility and Trading Strategies
Given the sharp drop in WTI to $85.00, we see a market reacting to headlines rather than reality. The CBOE Crude Oil Volatility Index (OVX) has already jumped over 15% this week, and we expect this nervousness to define trading in the near term. The primary tension is between a potential diplomatic breakthrough and the very real logistical chaos in the Strait of Hormuz.
The possibility of a deal with Iran is clearly bearish for prices, and we must respect that potential outcome. A return of Iranian supply, which some analysts estimate could add 1.5 million barrels per day within six months, would significantly alter global balances, similar to the price drop we saw after the 2015 JCPOA was announced. Therefore, we are cautiously purchasing out-of-the-money put options with July and August expirations to hedge against a sudden price collapse should a deal be signed.
Risks, Uncertainty, and Option Plays
However, we believe the immediate upside risks are being underestimated. The source material highlights that clearing mines, repairing infrastructure, and normalizing shipping through a waterway that handles over 20 million barrels per day will take months, not days. Any headline suggesting the talks have stalled could cause a violent price snapback, making short-dated call options a valuable tool for capturing that potential rally.
The conflicting military reports from the US and Iran create a classic environment for high volatility. We feel the best approach is to trade the uncertainty itself rather than picking a firm direction. This makes strategies like long straddles or strangles on August contracts particularly attractive, as they profit from a large price move in either direction without needing to predict the outcome of the negotiations.
For traders with a more defined view, credit spreads offer a cost-effective way to express it. The data showing LNG tankers still avoiding transponders suggests physical market players remain highly risk-averse, supporting the case for bear put spreads to capture further downside. Conversely, if one believes the logistical hurdles are the dominant factor, a bull call spread can capitalize on a relief rally while capping potential losses.
