Strait Of Hormuz Supply Shock
The Strait of Hormuz has been largely closed to most commercial shipping since late February after US and Israeli strikes on Iran. This has removed an estimated 17 to 18 million barrels per day from normal transit flows. WTI futures rose nearly 12% last Thursday. A Pakistan-brokered 45-day ceasefire proposal was also rejected by Iran, after messages were relayed by foreign ministers from Pakistan, Egypt, and Turkey. The EIA said US crude inventories rose by 5.5 million barrels in the week ending March 27. OPEC+ approved a 206K barrels-per-day output increase for April, while Goldman Sachs put the geopolitical risk premium at $14 to $18 per barrel. On a 5-minute chart, WTI traded at $103.97, with the 200-period EMA near $102.90; resistance was cited at $104.80 and $105.50, and support at $104.00, $102.90, and $102.50.Lessons For Trading And Risk
Looking back at the events of spring 2025, we are reminded of how quickly geopolitical risk can overwhelm market fundamentals. The massive backwardation we saw then, with May 2025 futures soaring to $115 while spot prices lagged, was a clear signal of extreme fear over near-term supply from the Strait of Hormuz crisis. This memory should guide our strategies, as even significant inventory builds were ignored when tensions flared. In the coming weeks, we must remain vigilant for similar disconnects between fundamentals and geopolitical headlines. With WTI currently trading near a more subdued $88 per barrel, the market seems complacent, but recent friction within OPEC+ over production compliance for March 2026 could easily escalate. We’ve seen reports that overall compliance fell to 95%, the lowest in over a year, suggesting internal discipline is fraying and creating supply uncertainty. Therefore, traders should pay close attention to the futures curve for any signs of it shifting back toward the kind of steep backwardation we witnessed in 2025. This structure is a key barometer of supply anxiety, and its appearance would be a strong signal to anticipate higher volatility. Right now, buying long-dated, out-of-the-money call options could be a cost-effective way to position for a sudden upward spike. We should also monitor oil volatility itself through instruments like the OVX index. Back in the 2025 crisis, the OVX spiked above 60, whereas today it is hovering around a relatively calm 32, suggesting options are comparatively cheap. This environment presents an opportunity to build positions that would profit from a sharp price movement in either direction, such as a long straddle, ahead of the next OPEC+ meeting. While the most recent EIA report showed a surprise inventory draw of 2.1 million barrels for the week ending April 3, 2026, the lesson from 2025 is that such data can become a secondary driver. A single headline concerning supply disruptions or major producer disagreements will likely have a far greater impact on price in the near term. We should therefore weight our analysis heavily toward geopolitical scanning and risk management. Create your live VT Markets account and start trading now.
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