WTI traded near $103.80 per barrel in early European hours on Friday. It held gains of over 10% as supply fears rose after new US warnings towards Iran.
US President Donald Trump said military action against Iran could intensify over the next two to three weeks. He gave no details on plans to reopen the Strait of Hormuz.
Rising Tensions In The Strait Of Hormuz
Iran said recent US strikes hit civilian infrastructure and would not change its stance. Separately, Iran and Oman were reported to be preparing a protocol to manage transit through the Strait of Hormuz.
In an interview with Sputnik, Iranian Deputy Foreign Minister Kazem Gharibabadi said Tehran is finishing the draft and will soon start talks with Oman. The aim is a joint framework for Hormuz transit.
The UK is holding virtual talks with around 40 countries on ways to reopen the Hormuz route. The US is not taking part after Trump said reopening it is not America’s responsibility and told European countries to secure their own oil.
We remember how quickly WTI jumped over 10% last year when tensions with Iran escalated over the Strait of Hormuz. That spike to near $104 a barrel serves as a stark reminder of how geopolitical risk can suddenly reprice the market. With crude currently trading around $82.50, the underlying risk from that region remains a primary factor for us to watch.
Positioning For Volatility In Oil Markets
The market’s fundamentals today are much tighter than they were during the 2025 scare. Recent data from the Energy Information Administration shows global oil inventories have fallen by over 40 million barrels since the start of the year. This thin supply buffer means any new disruption could have an even more dramatic effect on prices.
This situation suggests that oil market volatility is likely underpriced at its current levels. The CBOE Crude Oil Volatility Index (OVX) is trading near 32, a sharp contrast to the levels above 50 we saw during the peak of the tensions last year. This relatively low cost of options presents an opportunity for us to hedge against a sudden upward move.
In the coming weeks, we should consider positioning for a potential repeat of supply-shock fears. Buying out-of-the-money call options for the summer months offers a low-cost way to gain exposure to significant upside. These positions would act as insurance against any renewed conflict in the Middle East that could threaten critical oil transit routes.
