WTI, the US crude oil benchmark, traded near $86.40 in early Asian hours on Tuesday. It remained volatile after rising to almost $120 per barrel in the prior session. The International Energy Agency discussed a coordinated release of emergency oil reserves among member countries on Monday. Such a move could add short-term supply and limit sharp price rises during supply disruption risks.

Middle East Headlines And Price Pressure

US President Donald Trump said he plans to waive oil-related sanctions and said the war with Iran would resolve “very soon”. These comments reduced concerns about a long conflict in the Middle East, putting downward pressure on WTI. The Strait of Hormuz remained close to closed, with no final plan on protecting ships using the route. About one-fifth of global oil shipments pass through the strait, and the disruption to fuel supplies could support WTI in the near term. Markets also awaited the American Petroleum Institute report due later Tuesday. A larger-than-expected inventory draw can point to stronger demand, while a bigger build can suggest weaker demand or excess supply. We remember the extreme volatility in 2025 when WTI crude spiked to nearly $120 a barrel before comments about sanctions and a potential end to the conflict with Iran brought it back down. That price swing from last year serves as a sharp reminder of how quickly geopolitical headlines can whipsaw this market. Today, with WTI hovering around $92, we see similar, though less severe, tensions emerging from the latest OPEC+ disagreements over production quotas.

Lower Reserves And A Thinner Safety Net

Unlike last year, we should be wary of relying on a coordinated release of emergency reserves to cap any potential price spikes. Global strategic petroleum reserves, particularly in the US, are now at 50-year lows after consistent draws, including the significant release during the 2025 Hormuz crisis. This means the world has less of a buffer to handle a new supply shock, making the market more fragile than it was a year ago. This nervousness is visible in the options market, where implied volatility is climbing. The CBOE Crude Oil Volatility Index (OVX) has risen over 15% in the last month to 38, signaling that traders are pricing in a greater chance of large price swings in the weeks ahead. This makes buying protection, such as long-dated put options, more expensive but potentially necessary for those with heavy long exposure. Given the rising volatility, traders should consider strategies that benefit from this environment, such as buying call options to capture potential upside from any supply disruption. A less costly alternative would be using bull call spreads to define risk while still maintaining a bullish bias. We believe the risk is skewed to the upside as long as geopolitical tensions simmer without a clear resolution. The fundamental picture supports this cautious but bullish outlook, as recent inventory data shows a tightening market. The last five weekly EIA reports have shown a cumulative crude oil draw of over 15 million barrels, indicating that demand is consistently outpacing supply right now. This underlying tightness suggests that any unexpected supply disruption could have an amplified effect on prices, unlike the more balanced market we saw before the 2025 spike. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account