Supply Risks In Focus
Reuters reported that Iraq, OPEC’s second-largest producer, has cut output by nearly 1.5 million barrels per day due to storage limits and blocked exports. Officials said Iraq could shut in up to 3 million bpd within days if flows do not restart. MarineTraffic data showed at least 200 ships, including oil and LNG tankers, anchored off Iraq, Saudi Arabia and Qatar. UKMTO said eight vessels, including Safeen Prestige, have been hit since Saturday. The campaign has entered its sixth day after reports that a US submarine sank an Iranian warship off Sri Lanka. US Defense Secretary Pete Hegseth said it was the “first such attack on an enemy since World War II.” Reuters also cited a scenario of a four- to five-week US campaign and an effective closure of Hormuz, with crude moving toward $100. US President Donald Trump offered risk insurance and naval escorts, while Treasury Secretary Scott Bessent outlined further steps.Market Echoes And Strategy
Given the market’s memory of the Hormuz crisis in 2025, we see current conditions as a potential echo of that volatile period. Last year’s conflict, which saw WTI crude spike toward $100 a barrel, showed how quickly geopolitical events can upend supply. That price shock has created a persistent sense of caution in the energy markets. The CBOE Crude Oil Volatility Index (OVX) is currently hovering near 29, which is significantly lower than the peaks we saw during the 2025 disruptions. This suggests a degree of market complacency, creating an opportunity for those who anticipate renewed tensions. With the U.S. Strategic Petroleum Reserve still near 40-year lows at around 365 million barrels, the ability to cushion a new supply shock is limited. We believe traders should consider building long positions through call options on WTI for summer 2026 contracts. The tight supply situation, with OPEC+ widely expected to extend production cuts of 2.2 million barrels per day at their next meeting, provides a solid floor under prices. Buying the $85 and $90 strike calls offers significant upside exposure with a defined risk if another supply disruption materializes. Looking back at 2025, Iraq’s output was slashed by almost 1.5 million bpd, a scenario that could easily repeat. We are seeing early signs of renewed friction, with minor shipping delays reported near the Bab el-Mandeb strait last week. A strategy of buying June call spreads could therefore be prudent, allowing traders to finance longer-dated options by selling shorter-term ones. The macroeconomic picture supports this view, as the February 2026 Consumer Price Index reading came in slightly higher than expected at 3.3%. Another energy price surge would complicate central bank efforts to control inflation, potentially amplifying market reactions to any supply threats. This makes the energy sector particularly sensitive to geopolitical headlines in the coming weeks. Create your live VT Markets account and start trading now.
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