WTI, the US crude oil benchmark, traded near $105.00 during Asian hours on Monday, its highest level in almost four years. Traders are awaiting the American Petroleum Institute (API) inventory report due later on Tuesday.
On Sunday, US President Donald Trump said the US would target Iran’s power plants and bridges on Tuesday if the Strait of Hormuz is not reopened. Iran’s foreign ministry said Iran would respond by attacking similar infrastructure owned by, or linked to, the US.
Strait Of Hormuz Supply Impact
The Strait of Hormuz carries 20% of global oil and is effectively closed amid the US-Iran conflict. The closure has tightened physical supply and supported WTI prices.
OPEC+ agreed on Sunday to raise output by 206,000 barrels per day in May. The group is due to meet again on May 3 to decide further steps.
WTI stands for West Texas Intermediate and is a light, sweet crude sourced in the United States and priced via the Cushing hub. WTI prices are driven by supply and demand, geopolitical disruption, OPEC decisions, and the US Dollar, while weekly API and EIA stockpile reports can move prices; their results are within 1% of each other 75% of the time.
Given the market’s memory of last year’s crisis, where prices surged to nearly $105 a barrel, traders should view the current stability with caution. We remember how quickly the closure of the Strait of Hormuz created a severe supply shock. The geopolitical risk premium that was priced in during 2025 has faded, but the underlying tensions have not disappeared.
Options Volatility And Hedging
This period of relative calm makes options contracts cheaper than they were during the height of the conflict. With the CBOE Crude Oil Volatility Index (OVX) now trading near 32, down from the highs above 50 we saw during the 2025 Iran flare-up, there is an opportunity. This lower volatility means protective puts or speculative calls can be acquired without paying the extreme premiums demanded during a panic.
Currently, WTI crude is trading around a much calmer $85.50 per barrel, a significant retreat from last year’s peaks. This price reflects a market that feels adequately supplied for now, supported by recent data from the Energy Information Administration (EIA) showing U.S. crude production remains robust at over 13 million barrels per day. This strong American output provides a buffer that helps soothe supply anxieties.
However, we recall that the symbolic 206,000 bpd output increase from OPEC+ in May 2025 did little to calm the market because of the conflict’s severity. Any new sign of instability in the Middle East could cause a disproportionate price reaction, as traders will act on the memory of last year’s rapid ascent. Therefore, complacency is the biggest risk in the coming weeks.
A prudent strategy would be to acquire long-dated, out-of-the-money call options. These act as a relatively low-cost insurance policy against a sudden supply disruption or renewed conflict in the Persian Gulf. Should another event similar to last year’s occur, these positions would offer substantial upside.
For those anticipating a more moderate price drift upwards, establishing bull call spreads is a viable approach. This strategy limits the upfront cost and defines the risk, making it suitable for a market that is fundamentally well-supplied but remains sensitive to geopolitical headlines. It allows one to profit from a modest price increase without being exposed to the full risk of a sudden downturn.
