Oil Markets Sink as Hormuz De-escalation Priced In: USO -4.42%, Natural Gas -3.1%

The sell-off in energy today is the mirror image of the Iran peace deal repricing. USO (United States Oil Fund) fell 4.42% to $140.86, while UNG (Natural Gas) dropped 3.1% to $10.62. This is happening on a day when equities broadly rallied (SPY +1.17%, QQQ +2.13%), confirming this is a geopolitics-driven move, not a broad risk-off event.

The prediction market link is clear: the Strait of Hormuz normalization contract for end of May (0x518a5b030b205706b8) surged from 17¢ to 30¢ (+13¢) on nearly 1M volume. The Trump blockade-lift announcement contracts show similar conviction: May 15 lift at 25¢ (+14¢), May 31 at 50¢ (+12¢). The Kalshi weekly transit calls contract (KXHORMUZWEEKLY-26MAY) shows only 6¢ probability of >250 calls next week — confirming the market expects continued disruption in the short term but resolution in weeks, not months.

For oil traders, this represents a significant shift in the probability distribution. The WTI settle contracts are worth special attention: the <$96 May 8 settle (KXWTIW-26MAY08-T96.0) sits at 51¢ on 79k volume, while the >$109 version is at just 1¢. The year-end WTI maximum contracts show the market pricing $115-125 as the likely peak (KXWTIMAX-26DEC31-T12 at 54¢), down from earlier $140+ expectations.

The key question: does the Hormuz price action continue, or is this an overreaction? If peace deal probabilities maintain their trajectory (currently 17¢ for May 15, 28¢ for May 31), expect further downside in crude. If the deals stall, oil could snap back violently. Watch the May 15 deadline as the first major catalyst.