WTI, the US crude oil benchmark, traded near $89.00 during Asian hours on Friday. The price edged up after Lebanon’s army accused Israel of breaching a ceasefire.
US President Donald Trump said on Thursday that Israel and Lebanon had agreed to a 10-day ceasefire. Lebanon’s army reported on Friday that it recorded multiple alleged violations by Israel after the truce began at midnight local time on Friday.
Trump also said the US and Iran are likely to meet over the weekend for a second round of negotiations. No official date has been set for the talks.
Ceasefire Developments And Market Impact
Trump said on Thursday that a permanent ceasefire could be reached before the current arrangement expires next week. Expectations of a two-week ceasefire extension could put downward pressure on WTI.
Bloomberg reported that several European and Gulf Arab leaders think it could take six months to negotiate a US-Iran deal.
The tensions we saw developing last year between Israel and Lebanon continue to put a floor under oil prices. With West Texas Intermediate now trading near $95 a barrel, up significantly from last year, the market is pricing in a persistent geopolitical risk premium. Any renewed sign of conflict could easily push prices back towards the $100 mark in the coming weeks.
Options Positioning And Demand Watch
We have seen how the stalled US-Iran negotiations, which were a point of focus in 2025, have contributed to this uncertainty. War risk insurance premiums for oil tankers passing through the Strait of Hormuz have risen 12% in the last quarter alone, reflecting the tangible cost of this instability. The latest CFTC data also shows large speculators have increased their net-long positions in WTI, suggesting they are betting on higher prices.
However, derivative traders should watch demand signals closely for any sign of weakness. While the latest EIA report showed a surprise crude oil inventory draw of 2.1 million barrels, gasoline stocks unexpectedly built up, hinting that high prices may be starting to curb consumer demand. This creates a volatile environment where prices could quickly reverse on negative economic data.
Given this backdrop, traders should consider buying near-term call options to profit from a potential price spike caused by a flare-up in the Middle East. For those looking for a more risk-defined strategy, bull call spreads could capture upside while limiting the initial cost. This allows traders to position for a rise in prices without taking on unlimited risk if demand worries suddenly take over.
Looking back at historical conflicts in the region, such as the initial price shocks during the Gulf Wars, we can see that the market often overreacts to headlines before settling. This suggests that while there is an opportunity for sharp gains, traders must be ready for significant volatility. Using options to define risk is therefore a prudent approach in the current environment.
