Energy Prices Expected To Fall
With the expectation that the conflict could end within weeks, we are anticipating a sharp decline in energy prices. This suggests a bearish stance on crude oil derivatives is warranted. The market has priced in a significant risk premium that may soon disappear. West Texas Intermediate (WTI) crude has been trading above $125 a barrel for the past month due to the conflict’s disruption of shipping lanes in the Strait of Hormuz. We saw the latest EIA report show a larger-than-expected crude inventory draw of 4 million barrels just last week. A return of normal supply flows would directly reverse this trend. We believe buying put options on major oil ETFs or shorting WTI futures contracts for May and June delivery are direct ways to position for this. These trades would profit directly from a drop in the underlying price of oil. The number of short positions in the market has grown by 15% in the last month, showing that this sentiment is growing. We saw a similar pattern back during the first Gulf War in 1991, when crude prices collapsed nearly 35% in a single day once the air campaign began and uncertainty was resolved. The buildup in oil prices we witnessed throughout 2025 was based on the threat of prolonged conflict. An end to that conflict logically unwinds that premium.Volatility Could Drop Sharply
Implied volatility in the energy sector has been extremely elevated, with the Cboe Crude Oil Volatility Index (OVX) hovering near 60. An end to hostilities would likely cause this volatility to collapse, making strategies like selling call credit spreads attractive. This allows us to profit not just from falling prices but also from the decrease in market uncertainty. Create your live VT Markets account and start trading now.
Start trading now – Click here to create your real VT Markets account
