WTI crude oil prices moved sharply, with May futures jumping above $115 before easing to near $112. Spot WTI traded near $104, down 0.2%, after a range between about $101 and $106.
The gap between spot and front-month futures points to steep backwardation and a near-term delivery premium linked to a Tuesday deadline. WTI futures rose nearly 12% last Thursday, while spot prices stayed well below the futures level.
Donald Trump said the US would target Iranian power plants and bridges by midnight Tuesday if the Strait of Hormuz is not reopened by 8 pm Eastern Time. Iran rejected the ultimatum and said the Strait would reopen only after reparations for war damage.
The Strait has been largely closed to commercial shipping since late February, with an estimated 17 to 18 million barrels per day affected. A Pakistan-brokered 45-day ceasefire plan, passed via Pakistan, Egypt, and Turkey, was also rejected by Iran.
US crude inventories rose by 5.5 million barrels for the week ending 27 March, and OPEC+ approved a 206K barrels-per-day output increase for April. Goldman Sachs put the risk premium at $14 to $18 per barrel.
We remember the extreme volatility around this time last year, when the standoff with Iran over the Strait of Hormuz caused a massive spike in crude futures. The market went into extreme backwardation, with the May 2025 contract trading near $115 while spot prices struggled to hold $104. That memory of a $15 geopolitical risk premium appearing almost overnight should keep us cautious.
Unlike the acute crisis in March 2025, today’s market is dealing with a slower grind of competing factors. While geopolitical tensions in the Middle East persist, they haven’t shut down a major transit route. Recent data from the Energy Information Administration (EIA) shows a surprise build in U.S. crude inventories of 2.7 million barrels, suggesting softer demand than anticipated.
This inventory build contrasts with supply-side discipline, as OPEC+ has just agreed to extend its voluntary production cuts of 2.2 million barrels per day through the second quarter. This creates a tense balance where fundamental weakness is being propped up by managed supply cuts. WTI crude is currently trading around $85 a barrel, significantly lower than last year’s crisis peak but still elevated historically.
Given this setup, outright directional bets are risky in the coming weeks. The memory of last year’s sudden price explosion means any escalation in the Middle East could trigger a rapid rally, making short positions dangerous. Therefore, we should focus on options strategies to define our risk, such as buying call spreads to bet on a modest rise or purchasing puts to protect against a sudden drop if demand fears take over.
The elevated implied volatility in options contracts reflects the market’s anxiety, but it is a price worth paying for protection. We can use strategies like a straddle or strangle if we anticipate a large price move but are unsure of the direction. This allows us to profit from the volatility itself, which seems to be the only certainty in this market.
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