Pakistan’s Prime Minister Shehbaz Sharif said the US and Iran had agreed a deal to end a war that has lasted nearly four months, according to Bloomberg. He said both sides had declared an immediate and permanent halt to military operations on all fronts, including in Lebanon. US President Donald Trump said in a social media post that the deal with Iran was complete, adding he had authorised the toll-free opening of the Strait of Hormuz and, at the same time, the immediate removal of the US naval blockade.
Iran’s National Security Council confirmed a ceasefire agreement, saying final talks would begin after the other party met commitments under a memorandum of understanding, while Iranian officials said the maritime blockade should end immediately and entirely. Oil prices fell on the headlines, with West Texas Intermediate down 3.15% on the day at $80.00. WTI is a US-sourced, light and sweet crude benchmark distributed via the Cushing hub, and its price is shaped by supply and demand, geopolitical disruption and sanctions, as well as OPEC quota decisions and the US Dollar. Weekly inventory data from the API and the EIA can also move prices; their results are usually similar, within 1% of each other 75% of the time.
Impact Of The Peace Deal On Oil Prices And Supply
The peace agreement between the United States and Iran fundamentally reshapes the energy landscape, removing the significant geopolitical risk premium that has been embedded in oil prices. We are now factoring in a sustained period of lower crude prices as the market digests this news. This signals an immediate and strong bearish outlook for WTI and Brent crude futures in the coming weeks.
We see the reopening of the Strait of Hormuz as securing the daily transit of nearly 21 million barrels of oil, immediately erasing a primary supply chain fear. The more critical factor is the return of Iranian crude to the market, which could add over 1 million barrels per day to global supply within the next few months. This influx of supply is arriving at a time when global demand has shown signs of softening, according to recent EIA reports.
Trading Strategies And Market Risks
For our trading approach, we anticipate a sharp decline in implied volatility, which has been elevated due to the conflict. The Crude Oil Volatility Index (OVX) could fall from its recent highs above 35 back toward its long-term average in the mid-20s. We are therefore looking at strategies that benefit from falling prices and collapsing volatility, such as buying put spreads or selling call spreads.
With WTI crude already breaking the $80 support level, we are targeting a move down to the $72-$75 range in the short term. Historically, the removal of a major supply risk, such as the 2015 Iran nuclear deal, has led to prolonged downward pressure on prices. We will be watching weekly inventory data closely, as we now expect to see consistent builds in US crude stocks.
The most important counter-risk to this view is a potential coordinated response from OPEC+. We expect the cartel will consider an emergency meeting to announce deeper production cuts to stabilize the market and establish a new price floor. Any news regarding such a meeting will be a critical signal for us to potentially scale back our short positions.
