WTI has fallen back from a spike near $120 but remains supported by reduced Gulf output and limited ability to reroute supplies. Rabobank expects supply conditions to ease over time as flows gradually return. About 14 million b/d of supply is estimated to be stranded since the closure of Hormuz. Of this, around 5m b/d of Saudi supply could shift to Yanbu on the Red Sea, and about 1.5m b/d of UAE supply could bypass the Strait and load at Fujairah.

Strategic Reserve Releases

G-7 countries plus China may release crude from their strategic petroleum reserves to reduce the impact. These releases are expected to cushion some disruption, but not fully cover a prolonged outage. Rabobank forecasts WTI averages of $83/bbl in Q2 2026, $80/bbl in Q3 2026, and $78/bbl in Q4 2026. It projects $72/bbl for 2027. With WTI crude pulling back from its recent spike near $120, the market is digesting the ongoing supply shock. We see that roughly 7.5 million barrels per day remain stranded even after accounting for rerouting efforts from Saudi Arabia and the UAE. This fundamental tightness provides a strong floor for prices in the near term. The G7 nations and China have now confirmed a coordinated release of 100 million barrels from strategic reserves over the next three months. This action is capping the upside and has pulled the front-month contract back towards the mid-$80s, but it is only a temporary cushion against a prolonged outage. We view this release as a source of short-term supply that will not alter the medium-term bullish structure.

Options And Curve Positioning

Implied volatility remains extremely high, with the OVX index trading near 45 after peaking above 70 during the initial panic. This is more than double the levels we saw for most of 2025. This elevated premium makes selling options attractive for those who believe the worst of the price spike is over. The market is in steep backwardation, with near-term contracts priced significantly higher than those for late 2026 and beyond. We see an opportunity in calendar spreads to profit from this structure as the announced SPR barrels hit the spot market. This should pressure the front of the curve more than deferred contracts. Given the projection for a gradual decline to $80 by the third quarter, traders should consider establishing bearish positions that have limited risk. Buying put spreads, such as purchasing the June $80 put while selling the June $75 put, offers a defined-risk way to position for this expected slow grind lower. This is a more cautious approach than outright shorting in such a volatile environment. Looking back, this situation is more severe than the 2019 attacks on Saudi facilities, but the market reaction follows a similar pattern of an initial overreaction followed by a gradual normalization. History suggests that while the geopolitical risk premium will persist, the panic-driven spike is unlikely to hold. We expect prices to methodically ease toward the $83 per barrel average forecast for the second quarter. Create your live VT Markets account and start trading now.

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