WTI crude rose for a fifth straight session, opening with a gap up and trading near $110.60 a barrel in Asian hours on Monday. It reached $110.73, its highest level since June 2022, amid concerns that a prolonged Middle East conflict could disrupt energy supplies. Middle Eastern producers reduced output as the Strait of Hormuz remained closed due to the Iran war. Kuwait announced precautionary cuts, and Iraq’s southern output fell to 1.3 million barrels per day from 4.3 million.

Supply Shock In The Gulf

Qatar’s energy minister Saad Sherida Al‑Kaabi told the Financial Times that Gulf producers may halt exports within weeks. The report said oil could rise to $150 per barrel. The Telegraph reported that US President Donald Trump described higher oil prices as a “very small price to pay” in the context of defeating Iran. Trump also posted that Iran’s option was unconditional surrender and that he would help choose Iran’s next leader afterwards. The Iran war entered its second week with no stated end point. Mojtaba Khamenei was appointed supreme leader just over a week after Ali Khamenei was killed in US-Israeli strikes. A correction on March 9 at 2:30 GMT revised the headline to “over three-year highs”, not “54-month highs”.

Derivatives Positioning And Risk

With WTI crude breaking $110, the immediate focus should be on bullish strategies using derivatives. We are seeing a massive surge in call option buying, particularly for contracts with strike prices of $120 and $130 expiring in the next two months. The CBOE Crude Oil Volatility Index (OVX), a key measure of oil price volatility, has already surged past 60, reflecting extreme market uncertainty and making options premiums very expensive. We should remember the price action following the conflict in Ukraine back in early 2022, when crude briefly touched similar levels before peaking near $130. Given the direct closure of the Strait of Hormuz, a chokepoint for roughly 20% of global supply, the $150 per barrel target mentioned seems increasingly plausible. This historical precedent from last decade suggests the current rally has significant room to run as long as the conflict continues to escalate. In the futures market, we are observing an extreme state of backwardation, signaling a severe immediate supply shortage. The premium for the front-month April contract over the May contract has blown out to over $5, a level not seen since the supply shocks we experienced in 2025. This structure strongly incentivizes holding long positions and signals that the physical market is exceptionally tight right now. Despite the bullish momentum, the risk of a sharp reversal on any news of de-escalation means hedging is critical. We are seeing some traders buy far out-of-the-money put options as a low-cost way to protect against a sudden peace agreement or a coordinated release from strategic petroleum reserves. The high implied volatility makes these hedges expensive, but they could be essential if the political situation changes unexpectedly. Create your live VT Markets account and start trading now.

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