West Texas Intermediate traded near $75.70 on Wednesday, down 0.22% on the day, after four straight sessions of heavy losses. Markets are centred on an interim US-Iran accord expected to be signed in Switzerland on Friday, which is anticipated to enable a rapid restart of Iranian oil exports and a gradual recovery in shipping through the Strait of Hormuz. Shipping data show several Iranian tankers have resumed movements this week, adding to expectations of higher global supply in coming months. Middle Eastern crude pricing has softened as the supply outlook improves: Dubai crude has moved into contango for the first time since January, while spot Oman and Murban differentials have shifted into discount territory. Some observers still see uncertainty around the pace of a full normalisation in physical flows. Société Générale says the adjustment is uneven across indicators, with Brent pricing, implied volatility and options markets not showing the same degree of normalisation, while MUFG links the recent fall in crude prices to lower near-term inflation risks and greater Federal Reserve policy flexibility.

Positioning Ahead Of The US-Iran Accord

With West Texas Intermediate crude stabilizing near $75.70, we are positioning for tomorrow’s expected US-Iran agreement. Much of the bearish news about increased supply seems already priced in after four days of losses. Our immediate focus is on the details of the accord and whether the market sells off further on the official confirmation. The primary driver for lower prices is the prospect of more Iranian oil, and recent data supports a well-supplied market. Yesterday’s Energy Information Administration (EIA) report showed a surprise inventory build of 2.1 million barrels, against expectations of a draw. We anticipate this trend could continue as Iranian exports begin to normalize, creating downward pressure on front-month futures contracts. However, we remain cautious about how quickly this new supply can realistically impact global balances. Looking back at the 2015 nuclear deal, it took Iran over six months to substantially ramp up its production and exports due to logistical and investment hurdles. A similar delay this time could lead to a short-term price bounce if the physical barrels don’t materialize as fast as the market expects.

Market Structure, Volatility, And Policy Implications

We see a notable disconnect in the options market, which suggests residual risk is still being priced in. While the spot price has fallen, the CBOE Crude Oil Volatility Index (OVX) remains elevated, holding above the 30-point mark. This indicates that options traders are not fully convinced of a smooth return to lower prices, making strategies that sell volatility, like short strangles, potentially attractive if the diplomatic outcome is clear. The developing contango in Middle Eastern benchmarks, where near-term prices are lower than future prices, presents a clear opportunity. This structure signals ample supply right now. We are evaluating calendar spread trades, such as selling the August WTI contract and buying the December contract, to profit from this market dynamic. Finally, the recent price drop helps ease inflation fears, which could influence the Federal Reserve. Fed officials have been signaling a cautious policy stance, but sustained lower oil prices give them more flexibility to avoid overly restrictive measures. This macro tailwind could support underlying demand and establish a price floor for crude later in the year.

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