The war in Iran has caused oil supply outages described as the largest on record. The IEA puts March production losses at an average of at least 8 million barrels per day, taking global daily supply to just under 99 million barrels, the lowest since the first quarter of 2022. IEA member countries have announced a record release of 400 million barrels from emergency reserves to ease market conditions. This volume would cover a complete loss of supplies through the Strait of Hormuz for about one month; if released over two months, a gap of around 7 million barrels per day would still remain if the strait stayed fully closed.

Ongoing Conflict Supports Oil Prices

The reserve release is presented as a short-term measure and does not remove the underlying impact of the outages. With the conflict ongoing, Brent and wider oil prices are expected to remain supported. The US EIA forecasts that higher prices may lift US output after a delay of several months. It expects US crude production to average 13.6 million barrels per day this year and 13.8 million barrels per day next year. Given the largest oil supply outage ever recorded, with 8 million barrels per day currently offline, we are in a fundamentally bullish environment. With Brent crude holding firm around $115 per barrel, the path of least resistance is upward. The announced 400 million barrel strategic reserve release is significant, but it only papers over a massive structural deficit for a month or two. For the coming weeks, we should consider maintaining long positions in front-month futures contracts, such as May and June 2026 Brent or WTI. Buying call options is also a direct way to bet on further price increases, though high volatility makes them expensive. This sustained disruption keeps the pressure on prices, as the market is clearly undersupplied.

Volatility And Positioning Considerations

The market’s anxiety is reflected in the CBOE Crude Oil Volatility Index (OVX), which has surged to around 55, a level we haven’t seen since the market turmoil of early 2022. This high implied volatility suggests traders should look at strategies like bull call spreads. This approach can lower the cost of entry while still profiting from a rise in oil prices. Looking back, we saw US production reach a strong 13.3 million barrels per day last year in 2025, but the current forecast for 13.6 million shows only a marginal increase is expected this year. Recent Baker Hughes data shows the US rig count has only ticked up by a handful of rigs in the past month. This confirms that a significant American supply response will take many months to materialize and will not solve the immediate crisis. The strategic reserve release has likely prevented an extreme price spike above $130, but we view its effect as temporary. Once the market fully digests that this is a finite solution against an open-ended conflict, the focus will return to the supply gap. Any price dips in the short term, therefore, present potential opportunities to add to bullish positions. Ultimately, all strategies are secondary to the geopolitical situation in Iran and the Strait of Hormuz. We must monitor news related to the conflict for any signs of de-escalation, as that would be the primary catalyst to unwind these positions. As long as the war continues, oil prices will have a powerful tailwind. Create your live VT Markets account and start trading now.

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