Oil and gas prices fell on Wednesday as Iran considered a new US proposal to end the conflict, raising expectations that flows through the Strait of Hormuz could gradually resume. Brent traded as low as $96 a barrel after dropping below $100/bbl, while European gas also declined.
Oil steadied on Thursday morning at around $100 a barrel, after losing almost 8% in the previous session. The move partly reversed earlier gains linked to disruption fears in the Middle East.
Proposal Details And Market Reaction
The proposal is described as a one-page memorandum that could lead to a gradual reopening of Hormuz and the lifting of US restrictions on access to Iranian ports. Iran is expected to respond via a mediator in the coming days, with no agreement yet and further negotiations still expected, including on Iran’s nuclear programme.
US crude inventories continued to tighten, increasing reliance on US supply to offset disrupted Middle Eastern flows. EIA data showed US commercial crude inventories fell by 2.3m barrels last week versus the API’s 8.1m-barrel draw and market expectations of a 2.4m-barrel decline.
The smaller draw followed a sharp fall in exports, down 1.7m b/d week on week after a record high the prior week. Energy markets are expected to remain highly sensitive to US–Iran news.
We have seen oil and gas prices drop sharply on hopes of a new US-Iran deal that could reopen the Strait of Hormuz. Brent crude touched $96 a barrel before finding its footing again around the $100 mark. This price action shows that while the market is hopeful for a resolution, it remains extremely cautious.
Options Volatility And Trading Implications
This kind of uncertainty is a clear signal for the options market, where implied volatility is likely to remain elevated. Traders should consider strategies that profit from large price swings, as a failed deal could send prices soaring just as quickly as a successful one sent them down. A headline from either side could easily cause a 5% move in a single session.
The underlying fundamentals still point to a tight market, which traders must not forget. This week’s Energy Information Administration (EIA) report showed US crude inventories falling by another 1.4 million barrels, continuing the tightening trend we’ve seen since March. This underlying tightness provides a strong floor for prices if diplomatic efforts stall.
Looking at the supply side, OPEC’s latest monthly report confirmed that April production held steady near 26.6 million barrels per day, with key members sticking to their output cuts. Meanwhile, the latest CFTC data shows money managers have reduced their net long positions in WTI crude for the second straight week. This indicates large speculators are becoming more cautious about being overly bullish.
We remember a similar situation in late 2025 when tensions in the Red Sea caused oil volatility to spike before calming on diplomatic news. That event showed us how quickly the risk premium can be priced in and out of the market. The current situation with Iran feels very similar, where the market is torn between a bearish diplomatic story and a bullish supply reality.
Therefore, the focus for the coming weeks should be on managing risk around key announcements from the US or Iran. Using short-dated options can allow for exposure to the headline-driven volatility while clearly defining downside risk. We believe it is wise to be positioned for a significant move in either direction rather than betting on a specific outcome of the talks.
