Impact Of The US-Iran Deal On Oil Prices
Based on the announcement of a US-Iran deal, we see the immediate path for oil prices as lower. The reopening of the Strait of Hormuz, a chokepoint for nearly 21 million barrels of oil per day, fundamentally eases global supply concerns that have kept prices elevated. The initial 4% slide below $80 is likely the beginning of a larger downward move as the market unwinds its significant geopolitical risk premium. For the coming weeks, we believe put options are the most direct way to capitalize on this bearish momentum. We are looking at strikes targeting the $75 and $70 levels, which line up with key technical support areas. Implied volatility has spiked on this news, making options an effective tool for expressing a strong directional view on WTI crude.Risks, Volatility, And Historical Parallels
This news is compounded by recent inventory data, as the last EIA report on June 10 showed a surprise build of 2.1 million barrels, suggesting a slight softening in demand. All eyes will now be on this Wednesday’s report for confirmation of this trend, which could accelerate the price decline. We see significant downside risk if inventories continue to climb against expectations. However, we must be cautious, as the actual implementation of the deal is scheduled “within 30 days” and the final terms will only be signed on June 19. Any hint of a delay or a less impactful agreement could spark a violent short-covering rally. The reports of damaged energy infrastructure are a valid concern that could mute the actual return of supply to the market. Historically, we can look at the 2015 JCPOA deal, after which oil prices trended down for months as the market anticipated the slow return of over 1 million barrels per day of Iranian oil. While that precedent suggests further weakness, we note the current market has less spare production capacity than in 2015. This could put a floor on prices higher than pre-war levels, possibly near the $70 mark. The significant uncertainty surrounding the timeline and the actual volume of oil returning creates a high-volatility environment. For those unsure of direction but confident in large price swings, option strategies like long straddles could be effective. We expect the oil volatility index to remain elevated as the market digests the details of this agreement over the next month.Start trading now — click here to create your real VT Markets account.
