Market Shock And Supply Disruption
US crude prices have risen more than 40% since the conflict began, amid reports of the Strait of Hormuz being effectively closed. The IEA said the US-Israeli war on Iran is creating the largest supply disruption in the history of the global oil market. Iran’s new supreme leader, Mojtaba Khamenei, said keeping the Strait of Hormuz closed should remain a “tool to pressure the enemy”. He also said US military bases in the region should shut down or face possible attacks. We remember well the volatility of early 2025, when the Iran conflict caused WTI to surge over 40% and hover near $95 per barrel. The closure of the Strait of Hormuz created a supply shock that was only temporarily eased by coordinated strategic reserve releases. This memory of extreme price reaction is now a key factor in how we view market fragility. Looking at our situation today on March 13, 2026, the market has a much thinner safety cushion. Following those releases last year, U.S. Strategic Petroleum Reserve levels are near 355 million barrels, a 40-year low that limits Washington’s ability to intervene in a new crisis. This lack of a backstop means any new supply disruption will likely have a more immediate and severe impact on prices.Positioning And Risk Management
Current fundamentals are keeping WTI firm, trading this week near $88 per barrel. OPEC+ has maintained its production discipline, with recent data showing the bloc extended its voluntary cuts of 2.2 million barrels per day through the second quarter of 2026. This tight supply, combined with steady demand growth from India and other non-OECD countries, creates a floor under the market. Given the market’s heightened sensitivity to geopolitical news, we see value in long-dated call options. Buying calls allows for participation in any sudden price spike while strictly defining the maximum loss to the premium paid. With tensions in the Middle East still simmering, these options act as a cost-effective way to position for a potential repeat of last year’s upward explosion in prices. Conversely, the elevated price level presents its own risks, and we should consider hedging long physical or futures positions. Purchasing put options can protect against a sudden downturn should there be a surprise diplomatic breakthrough or an unexpected increase in OPEC+ production. This strategy provides a necessary insurance policy against the downside in a market priced for tension. Implied volatility remains high, making standalone options expensive, which is a direct consequence of the 2025 supply shock. Therefore, we should focus on option spreads to mitigate these high costs. A bull call spread, for instance, would allow us to take a bullish position with a lower cash outlay, which is a prudent approach in the current environment. Create your live VT Markets account and start trading now.
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