WTI futures on NYMEX rose 7.6% to near $98.00 in Asian trading on Monday. The move followed a Truth.Social post from US President Donald Trump saying he instructed the navy to blockade “any or all ships trying to enter or leave” the Strait of Hormuz, a route linked to almost 20% of global energy supply.
The warning followed talks between Iran and US Vice President JD Vance that failed after Iran refused to drop its nuclear ambitions. Trump also ordered the navy to “seek and interdict every vessel in International Waters that has paid a toll to Iran”, adding that “no one who pays an illegal toll will have safe passage on the high seas”.
Hormuz Blockade Threat Drives Oil Spike
US Central Command said forces will start a blockade of all maritime traffic entering and exiting Iranian ports on Monday, 10 AM ET (14:00 GMT). Separately, Saudi Arabia said it restored full pumping capacity of its East-West pipeline to seven million barrels a day.
On the daily chart, WTI traded around $98 and stayed above the 20-day EMA at $93.41. The RSI (14) was 56.23, with support near $93.41 and a higher level near $106.70.
The move towards $98 a barrel signals a significant shift in market dynamics, and we must position for further price increases. A full blockade of the Strait of Hormuz would represent the most severe supply disruption since the 1970s. This is a time to prepare for extreme volatility and substantial upward price pressure in the coming weeks.
We are observing a massive influx into out-of-the-money call options for WTI, specifically for the June and July contracts with strike prices above $110. Implied volatility on near-term options has surged past 65%, reflecting the market’s anticipation of sharp, unpredictable price movements. This indicates that the cost of insuring against price spikes is rising rapidly, a trend we expect to continue.
This supply shock is occurring at a time when the market is already tight, which will magnify its impact. The most recent Energy Information Administration (EIA) report showed a drawdown in U.S. crude inventories of 3.8 million barrels, surprising analysts who had predicted a small build. This pre-existing supply tightness provides very little cushion for the loss of Iranian barrels.
Positioning And Risk Management
Technically, the price holding firmly above the 20-day moving average near $93.41 confirms the bullish trend. We should view any pullbacks to this level as opportunities to add to long positions. The next logical price target is the recent high around $106.70, a level that could be tested very soon.
We must recall the market reaction to the start of the Ukraine war back in 2022, when WTI soared from around $90 to over $120 in just a few weeks. The current threat to the Strait of Hormuz has the potential to trigger a similar, if not more aggressive, price rally given the volume of oil that passes through it daily.
While the primary strategy is to be long, we should not ignore the risks of a sudden de-escalation. The news that Saudi Arabia has restored its East-West pipeline capacity offers a minor offset but cannot replace the nearly 20 million barrels per day that transit Hormuz. Therefore, using put spreads to hedge long futures positions could be a prudent way to protect against a sudden diplomatic breakthrough.
