WTI, the US crude benchmark, slipped to around $79.40 in early Asian trade on Monday, hovering near $79.50 and marking a two-month low. The drop followed reports that Washington and Tehran had agreed a peace deal to end a nearly four-month war, with an immediate and permanent halt to military operations on all fronts, including in Lebanon. Trump also said the Strait of Hormuz would open on Friday, after being effectively closed since shortly after US and Israeli airstrikes on Iran on 28 February, and he authorised the removal of a US naval blockade.
Risk sentiment remains fragile after Trump warned that if Iran fails to reach a final nuclear accord with the US, military strikes on Tehran would resume. Oil markets are also watching US stockpile signals: the American Petroleum Institute’s weekly crude inventory report is due on Tuesday. Separately, OPEC is a 12-nation producer group that sets output quotas at twice-yearly meetings, while OPEC+ adds ten non-OPEC members including Russia. API and EIA inventory results typically fall within 1% of each other 75% of the time, with EIA seen as more reliable.
Immediate Bearish Outlook and Trading Strategies
Given the news of a US-Iran agreement, we see the immediate path for WTI crude oil as bearish. The rapid drop to a two-month low near $79.50 is a direct result of de-escalation in a critical oil-producing region. Our strategy is to anticipate further price weakness by selling front-month futures contracts or buying put options to capitalize on this downward momentum.
The planned reopening of the Strait of Hormuz is the most significant factor, as this chokepoint is responsible for the transit of about a fifth of the world’s daily oil supply. The return of millions of barrels per day to the market will create a supply glut that current demand may not absorb. We are therefore looking at put options with strike prices near $75, as the market has not fully priced in this supply shock.
Volatility and Inventory Data as Market Drivers
However, the situation remains fragile because the deal is conditional on a final nuclear accord. This underlying tension will keep option volatility elevated, presenting unique opportunities. Historically, geopolitical shifts like this can cause oil volatility indexes to spike over 40%, making it expensive to hold long positions, so we are considering selling out-of-the-money call spreads to collect premium from this uncertainty.
All eyes will now be on this week’s inventory data for signs of demand strength. We’re cautious because the most recent Energy Information Administration (EIA) report showed an unexpected inventory build of 4.1 million barrels, suggesting underlying demand may already be soft. Another build reported by the API on Tuesday would confirm this trend and likely accelerate the price decline.
