Oil falls in early Asian trade on hopes for a US-Iran deal to reopen the Strait of Hormuz, though options data shows unusually low investor conviction and a 37% implied chance of oil above $100 in three months.
Summary:
Source: Wall Street Journal; Capital Economics analyst Kieran Tompkins
- Oil declined in early Asian trading as traders weighed the prospect of a US-Iran agreement to reopen the Strait of Hormuz
- Tehran signalled that recent strikes would not derail ongoing negotiations; US Secretary of State Rubio said a potential agreement could be finalised within days
- Oil options data shows investors expect prices to ease over the next three months but with unusually low conviction, reflecting the high uncertainty around any deal
- Options pricing implies flows via the Strait resuming is the most likely outcome, but investors are implicitly placing a 37% probability on oil returning above $100 a barrel within three months
Oil prices fell in early Asian trade on Wednesday as hopes for a diplomatic agreement to reopen the Strait of Hormuz provided tentative relief to a market that has been on edge since the outbreak of the US-Iran conflict.
The decline came despite a backdrop of renewed hostilities, with Tehran signalling that the latest strikes would not derail ongoing negotiations. US Secretary of State Marco Rubio added to the cautious optimism, saying it would take only a few days to resolve the remaining obstacles to a potential agreement. The combination of continued military activity and parallel diplomacy has left traders navigating a highly uncertain environment in which the directional signal from any single headline can reverse quickly.
Options market data analysed by Capital Economics analyst Kieran Tompkins offers the most precise read available on how investors are positioning. The options strip suggests that a resumption of flows through the Strait of Hormuz is the outcome traders regard as most probable over a three-month horizon, consistent with the easing in spot prices seen in early Asian trade. However, Tompkins notes that conviction behind that base case is unusually low by historical standards, a sign that the market is hedging heavily against alternative scenarios.
The starkest illustration of that hedging is the implied probability embedded in the options: investors are placing a 37% chance on oil trading above $100 a barrel within three months. That figure sits alongside a central expectation of price easing and is large enough to keep risk premiums elevated even as the diplomatic tone improves. A 37% tail is not a fringe outcome — it reflects a market that regards the possibility of a deal breakdown, or a prolonged and contested reopening process, as a live and material risk rather than a remote contingency.
Uncertainty remains the dominant market condition. Rubio’s “a few days” framing now sets a near-term test: if that window closes without a credible agreement, the current conciliatory pricing is likely to reverse sharply.
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The options market’s implicit 37% probability of oil above $100 in three months is the number that matters here. It sits alongside a base case of easing prices and Hormuz resumption, but it is far too large a tail risk for energy traders to dismiss. Low conviction across the options strip reflects a market that is directionally leaning toward resolution while remaining deeply uncertain about the timeline and durability of any agreement. Rubio’s “a few days” framing introduces a specific near-term catalyst window; if that passes without a deal, the downside to the current conciliatory pricing could be sharp
