IRNA published the main terms of a US-Iran Memorandum of Understanding, following a Bloomberg report that the document is due to be signed in Geneva on Sunday. The text states Iran makes no commitment on transferring management of the Strait of Hormuz, while any future administration would be handled as a regional matter via dialogue and joint decision-making between Tehran and Oman.
The memorandum contains no agreement on the nuclear file, but sets out that nuclear talks will begin within 60 days of signing. Oil markets showed limited immediate reaction after the terms were released, though prices had already moved on expectations around the US-Iran MoU. At the time of reporting, WTI was down 2.65%, trading near $83.00.
Market Reaction And Uncertainty
We believe the recent drop in WTI to $83 has already priced in the best-case scenario for the US-Iran memorandum. The agreement pushes major decisions on the nuclear file and the Strait of Hormuz into the future. This lack of a firm resolution introduces significant uncertainty, suggesting the downward move is not secure.
The 60-day window for nuclear talks creates a clear timeline for potential market volatility. We are looking to buy that volatility, as any headline could cause sharp price swings. We saw implied volatility on crude options spike over 25% during the final negotiation stages for the 2015 JCPOA, and we anticipate a similar pattern here.
Market Fundamentals And Trading Strategies
Fundamental data does not support a sustained price decline from these levels. Recent EIA reports show US crude inventories have fallen by over 9 million barrels in the last three weeks, while OPEC+ has reaffirmed production cuts through the third quarter. This tight supply backdrop creates a solid floor under the market, limiting further downside.
Our view is that options strategies that profit from a large price move in either direction are now attractive. We are considering long straddles on August and September contracts to capture the full negotiation period. This allows us to position for a potential snap-back rally if talks fail, or a further drop if a real breakthrough occurs.
