West Texas Intermediate (WTI) rose over 10% after two days of losses, trading around $103.80 per barrel during Asian hours on Friday. Prices moved higher as markets reassessed supply risks linked to the conflict in the Persian Gulf.
US President Donald Trump gave no clear steps on reopening the Strait of Hormuz. He warned of stronger military action over the next two to three weeks, referenced a bridge strike in Tehran, and urged Iran to “make a deal”.
Iran Response And Escalation Risk
Iran’s Foreign Minister Abbas Araghchi said recent US strikes on civilian infrastructure would not force Iran to retreat. He described the strikes as showing an opponent in disarray and moral decline.
Oil prices dipped briefly after reports that Iran and Oman were drafting a protocol to monitor transit through the Strait of Hormuz. Iranian official Kazem Gharibabadi said tanker movements should be supervised and coordinated by both countries, according to IRNA.
The UK is holding talks with multiple countries on securing passage through the route. Separately, OPEC+ is considering a possible output increase, though any extra supply is not expected to affect markets in the near term.
We remember the sharp 10% surge in WTI prices last year, following the Trump-Iran tensions over the Strait of Hormuz. That event pushed crude well over $100 a barrel and sent volatility soaring. It serves as a key reminder of how quickly geopolitical headlines can impact our positions.
Current Market Setup And Hedging Idea
Today, with WTI trading much calmer around $82 per barrel, the market seems complacent. The Crude Oil Volatility Index (OVX) is hovering near 35, significantly lower than the levels above 50 we saw during last year’s crisis. This lower volatility environment makes options relatively cheaper, presenting a strategic opportunity.
Given the memory of that 2025 price spike, we should consider buying long-dated call options to hedge against any sudden supply disruptions. With current low implied volatility, the cost of this insurance is reasonable. This strategy allows us to protect our upside while defining our risk should the market remain stable or fall.
We note that OPEC+ spare production capacity is currently estimated by the EIA to be under 3 million barrels per day, one of the tightest buffers in the last decade. This leaves very little room to absorb a shock similar to what we saw in 2025 involving the Strait of Hormuz, through which over 20% of global petroleum liquids transit daily. Any new disruption could therefore have an even more dramatic price impact than what we witnessed.
For those looking to speculate on rising uncertainty, calendar spreads or call backspreads could be effective. These positions can profit from a sharp increase in volatility, even without a massive directional move in the price of crude itself. This is a way to position for a return to the chaotic conditions of 2025 without making an outright bullish bet.
