WTI traded close to $70.00 on Monday, leaving crude largely unchanged after a sell-off of almost 25% over the past three weeks. The earlier slide paused as fresh US-Iran hostilities and mixed messages on the Strait of Hormuz kept markets cautious. Reports said the two sides agreed to halt last weekend’s reciprocal attacks, yet the outlook for renewed talks remained unclear: Axios cited US officials saying discussions are scheduled for this week, while Iranian Deputy Foreign Minister Kazem Gharibabadi said there is no plan to meet US technical teams.
Uncertainty also centred on access to Hormuz. Iranian authorities said vessels can transit freely if they have clearance from Iran, and Gharibabadi wrote that Iran and Oman hold sovereignty over the waterway, adding they recently met to discuss traffic. CNN reported the US Navy lifted its alert for ships to “significantly high”, while the UKMTO raised its threat level to “substantial” after recent attacks on commercial vessels, according to Euronews. The prior retreat had reversed most earlier gains as progress in US-Iran peace talks lifted expectations of a swift reopening of Hormuz.
Geopolitical Tensions and Market Uncertainty
With West Texas Intermediate crude holding around $70, we see the market at a critical inflection point. The significant 25% price drop over the past few weeks appears to have paused due to renewed geopolitical friction. This creates a tense balance between bearish momentum and the potential for a sharp, headline-driven rally.
We are watching the situation in the Strait of Hormuz very closely. The elevated alert levels from the US Navy and UK maritime authorities are not just noise; they signal a real risk of supply disruption through a chokepoint that handles about a fifth of the world’s oil consumption. Any further escalation between the US and Iran could send prices sharply higher, regardless of broader fundamentals.
Market Fundamentals and Volatility Strategies
Despite these tensions, we note that recent fundamental data points to market weakness. Just last week, the Energy Information Administration (EIA) reported a surprise crude inventory build of 3.7 million barrels, suggesting softer demand than anticipated. This aligns with recent global forecasts from the IEA, which has revised its 2026 demand growth outlook downward, citing a slowdown in key economies.
OPEC+ decisions also continue to be a major factor in providing a floor for prices. Their recent agreement to extend voluntary production cuts of 2.2 million barrels per day provides some support against a complete price collapse. However, this action may not be enough to spark a new rally without a significant change in the demand picture or a real supply shock.
Given the conflicting signals, we believe the best approach is to trade the expected volatility rather than picking a firm direction. This market is primed for a significant move, and buying options strategies like straddles or strangles could be effective. These positions would profit from a large price swing in either direction, which seems more probable than the current sideways action continuing.
Historically, we have seen similar geopolitical flare-ups cause sudden and dramatic price spikes, as happened in early 2022. While the fundamental demand picture looks soft, a single incident in the Strait of Hormuz could easily make that irrelevant in the short term. Therefore, holding some upside protection through call options seems prudent, even for those with a bearish long-term view.
