WTI crude saw sharp two-way swings on Thursday as US-Iran developments shifted sentiment. The contract was little changed around $88 a barrel at the time of writing, after rising to an intraday high of $91.27, then sliding as the market weighed reports of renewed conflict against talk of diplomacy.
Prices initially climbed following reports of attacks in the Middle East, including US strikes on Iranian military sites and Iran’s claim of targeting a US airbase in the Gulf. The move reversed after Axios reported a preliminary US-Iran accord, which pushed WTI down to an intraday low near $86.28. The report described a 60-day memorandum of understanding to extend the current truce, pending final approval from President Donald Trump.
Outstanding issues were described as unresolved, including Iran’s nuclear programme and control of the Strait of Hormuz. Separately, the US Treasury announced new Iran-related sanctions on the newly formed Persian Gulf Strait Authority, while Treasury Secretary Scott Bessent said the US would not accept a tolling system in Hormuz and warned that partners participating in such tolling would be penalised.
Volatility and News-Driven Trading Range
The market is clearly caught between headlines of conflict and whispers of a truce. We see WTI crude trading in a news-driven range between roughly $86 and $91 per barrel. This extreme sensitivity means high volatility will be our primary focus in the weeks ahead.
Given the potential for sharp price moves on any news out of Washington or Tehran, we are looking at options strategies to manage risk. Recent data shows 30-day implied volatility on WTI options has jumped to over 45%, a level we have not seen since the regional flare-ups earlier this year. This setup is ideal for strategies that profit from large price swings, regardless of direction.
Historical Parallels, Fundamentals, and Trading Strategies
This situation is reminiscent of the summer of 2019 when tanker attacks near the Strait of Hormuz caused sharp but short-lived price spikes. Back then, prices rallied on fear but quickly faded when crude flows were not significantly disrupted. We must be prepared for a similar pattern where rumors and reality can pull the market in opposite directions.
It is important to remember the market’s tight fundamentals are preventing a larger price collapse on the truce news. The latest EIA report showed global crude inventories are 5% below their five-year average, providing a firm floor under prices. Any real supply disruption from the Strait of Hormuz, through which about 20% of the world’s oil passes, would have an outsized impact.
Our immediate focus will be on any confirmation regarding the 60-day memorandum of understanding and its final approval. Until we have clarity, we believe establishing a long straddle, which involves buying both a call and a put option, is a prudent way to position for a breakout. This allows us to profit whether the deal collapses and prices surge, or if it is confirmed and prices fall.
