Oil Markets Watch Middle East Risk
The International Energy Agency (IEA) head, Fatih Birol, said on Monday he was consulting governments in Asia and Europe about releasing stockpiled oil if necessary. On March 11, IEA members agreed to release a record 400 million barrels from strategic stockpiles to address supply disruption. WTI stands for West Texas Intermediate and is one of three major crude types, alongside Brent and Dubai Crude. It is sourced in the United States and distributed via the Cushing hub, and is often described as “light” and “sweet” due to low gravity and sulphur content. WTI prices are driven mainly by supply and demand, global growth, political disruption, sanctions, OPEC decisions, and the US Dollar. Weekly inventory reports from the API and the Energy Information Agency (EIA) can affect prices; the two sets of results are within 1% of each other 75% of the time. We remember this time last year, in 2025, when WTI crude pushed past $99 a barrel due to the escalating conflict with Iran. The threats to the Strait of Hormuz created significant upward pressure, reminding us how quickly geopolitical events can shift the market. That period of extreme volatility is a key reference point for our current strategy.Strategy Implications For Current Volatility
Today, the situation is different, with WTI trading lower, recently hovering around $81 per barrel as of late last week. Current market focus has shifted from the supply shocks we saw in 2025 to concerns over global demand, particularly with recent economic data from China suggesting a slower recovery. The latest EIA report showed a surprise build in crude inventories of 3.6 million barrels, reinforcing this demand-side weakness. The memory of last year’s price spike means implied volatility on crude options remains elevated, even with the lower spot price. We are seeing traders buying call options as a hedge against any sudden flare-up, which is keeping the cost of upside protection relatively high. This suggests that while the immediate trend may be soft, the market is pricing in a significant risk premium for another supply-side shock. In the coming weeks, a key strategy will be managing this discrepancy between the current bearish sentiment and the priced-in geopolitical risk. Selling cash-secured puts at strike prices well below the current market, perhaps around the $75 level, could be a way to collect premium from the elevated volatility. We must also watch the upcoming OPEC+ meeting, as any hint of extending production cuts could quickly reverse the recent downtrend. We also recall the IEA’s record release of 400 million barrels from strategic reserves last year, which only provided temporary relief. Current U.S. Strategic Petroleum Reserve levels are still rebuilding from that period, sitting at approximately 362 million barrels, which is significantly lower than historical averages before 2022. This diminished buffer means any new supply disruption could have an even more dramatic price impact than what we witnessed in 2025. Create your live VT Markets account and start trading now.
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