Oil prices have risen after Iran reversed a move linked to opening the Strait of Hormuz. Prices are still being driven by expectations of progress in US–Iran talks, despite ongoing disruption in energy flows through the strait.
Negotiations between the US and Iran are due to restart in Pakistan, with US Vice President JD Vance expected to attend. Iran is also expected to send a delegation, after earlier indications it would not join talks while a US blockade continues.
The current ceasefire is set to end on Wednesday, and President Trump has indicated he is unlikely to extend it. If talks do not produce progress, oil and gas prices may increase.
Disrupted supplies are expected to tighten the oil market the longer they continue. Restocking needs and the time required for energy flows and upstream production to recover may slow any return to normal conditions.
Any agreement is described as likely to remain fragile. This could mean limited downside for prices, with a higher price floor into 2026 than before the conflict.
The article states it was created using an AI tool and reviewed by an editor.
We see the oil market focusing too much on the hope of a breakthrough in the US-Iran talks. The reality is that the ceasefire is set to expire this Wednesday, and with President Trump unlikely to grant an extension, the risk of a sharp price spike is significant. This presents an opportunity for traders who believe the market is being too optimistic.
The physical supply disruption is more severe than futures pricing suggests. Roughly 20 million barrels of oil per day, or 20% of global supply, normally transit the Strait of Hormuz; recent shipping data shows traffic is down over 80%. This is rapidly draining inventories, with the latest EIA report showing U.S. crude stocks fell by 5.8 million barrels last week, far exceeding forecasts.
This situation creates a clear imbalance where implied volatility may be too low given the binary outcome of the upcoming talks. While the CBOE Crude Oil Volatility Index (OVX) is elevated near 42, it does not seem to fully price in the chaos of a failed negotiation. We believe options that profit from a sharp price move are currently undervalued.
Therefore, traders should consider buying front-month call options or call spreads to position for potential upside. The June and July 2026 contracts offer direct exposure to the immediate risk of the ceasefire ending without a deal. These positions would benefit directly if talks in Pakistan falter and the blockade remains in place.
Looking back to how markets reacted after the start of the conflict in Ukraine in early 2022, we saw prices spike and then establish a new, higher floor for an extended period. The current situation feels similar, where restocking needs and lingering geopolitical risk will support prices even if a fragile agreement is reached. The market floor for the rest of 2026 is likely much higher than it was pre-conflict.
For those with a longer-term view, this suggests that any price dip on positive headlines from the talks could be a buying opportunity. Selling out-of-the-money puts for December 2026 expiry could be a viable strategy to collect premium. This is a bet that the structural tightness in the market will prevent a return to pre-war price levels this year.
