WTI futures on NYMEX fell 7.6% to about $78.60 in Asian trading on Monday, as selling pressure followed Iran’s agreement to reopen the Strait of Hormuz. The move came after US President Donald Trump said planned attacks on Iran had been suspended, alongside claims that Iran would surrender its nuclear ambitions and allow the full reopening of the waterway, which is a chokepoint for almost 20% of global energy supply. Markets have been assessing whether the ceasefire holds, even as the announcement raised the probability of renewed peace talks and reduced near-term concern about extended supply disruption.
WTI had risen more than 22.5% in July during heightened US-Iran military tensions, but price action has since turned lower. The contract traded around $78.70 and remained below the 20-hour EMA at $81.18, while the RSI stood at 34.20, just above oversold territory. Resistance is seen near $81.18, and support is pegged to the July 28 low of $77.16; a break below that level would leave the July 13 low at $72.53 in view.
Trading Strategy Amid Easing Geopolitical Tensions
We advise derivative traders to prepare for sharp, downward movements in WTI crude oil futures as geopolitical tensions temporarily ease. With the Strait of Hormuz—which channels about 20.5 million barrels of oil per day—reopening, the immediate supply risk premium is evaporating quickly. We recommend focusing on short-term put options as the price hovers just above the critical $77.16 support level.
If WTI breaks below the $77.16 threshold, we expect a rapid slide toward the July low of $72.53. Traders should look to sell futures or buy near-the-money puts to capitalize on this potential 7% drop. However, because the Relative Strength Index (RSI) is near oversold territory at 34.20, we must anticipate brief technical bounces before the next leg down.
Managing Risk and Volatility
We must remain highly cautious because Middle Eastern peace agreements are historically fragile and subject to sudden reversals. To hedge against a sudden breakdown in talks, traders should consider buying out-of-the-money call options above the $81.18 resistance mark. This strategy protects our portfolios if a surprise attack or renewed sanctions trigger a sudden spike back toward the $85 level.
Data shows that implied volatility in the energy sector typically surges by over 15% during sudden geopolitical shifts, making option premiums expensive. We suggest utilizing bear put spreads to lower the cost of trading while still capturing the downward momentum. This balanced approach allows us to profit from the current bearish trend while keeping risk strictly defined.
