A wave of previously sidelined bets on an oil surplus is regaining traction as crude prices retreat sharply following a peace agreement between the United States and Iran, reversing the supply fears that dominated energy markets during the conflict.

Before the US military strikes on Iran, some traders had positioned for an oversupplied oil market by wagering that near-term crude prices would fall below later-dated futures contracts, a market structure known as contango, according to Bloomberg.

Those bets were effectively wiped out when the conflict triggered a surge in oil prices amid fears of supply disruptions.

At the height of the rally in late April, the August West Texas Intermediate crude contract traded more than $5 per barrel above the September contract, while September futures commanded a premium of roughly $4 over October.

The sharp move rendered more than 20,000 financially settled put option contracts — representing about 20 million barrels of oil per month — virtually worthless.

However, the market has shifted dramatically since the US-Iran peace deal. The spread between near-term WTI contracts has narrowed to less than $1 per barrel, bringing those previously abandoned bearish positions back into focus.

Despite the renewed downside pressure, analysts caution that risks remain. Any breakdown in the peace agreement could quickly revive supply concerns and trigger another price rally.

In addition, oil flows through the Strait of Hormuz may take time to normalize, while depleted storage inventories are unlikely to be replenished immediately, factors that could help limit further declines.

Bearish sentiment is also becoming more evident across broader oil markets.

According to the latest data from the Commodity Futures Trading Commission, money managers and other large speculators held their smallest net-long position in Brent crude in six months.

Net bullish positions have fallen by nearly 75 per cent since the end of March.

Options markets are reflecting the shift as well. The premium on two-month Brent call options has almost vanished after peaking at more than 30 points in mid-March, when disrupted oil flows and supply concerns fuelled expectations of higher prices.

The rapid unwinding of geopolitical risk premiums suggests traders are increasingly pricing in a more balanced — and potentially oversupplied, oil market, marking a sharp reversal from the scarcity fears that drove prices higher only weeks ago.