Geopolitical Risk Premium Returns
The Guardian reported this was the first time since the war with the US and Israel began that Iran hit oil and gas production sites, rather than refineries, terminals, and storage. Separately, the Israeli military said Ali Larijani and Basij force head Gholamreza Soleimani were killed in Israeli air strikes. These developments increased concern about retaliation and further supply cuts, which may support prices in the near term. However, rising US stockpiles could limit price gains. The American Petroleum Institute (API) reported US crude inventories rose by 6.6 million barrels for the week ending March 13. This followed a 1.7 million barrel fall the week before, versus a market forecast for a 600,000 barrel decline. We remember the sharp spike to $95 a barrel around this time in 2025 when direct conflict in the Middle East intensified. Those attacks on production facilities, a significant escalation at the time, serve as a potent reminder of how quickly the geopolitical risk premium can inflate prices. With WTI now trading closer to $82, much of that immediate fear has subsided, but the memory keeps volatility expectations elevated.Supply Cushion And Market Volatility
The fundamental supply picture today is vastly different from the fears that dominated last year. U.S. crude oil production remains robust, with recent Energy Information Administration (EIA) data showing output holding near a record 13.3 million barrels per day. This strong, non-OPEC supply provides a substantial buffer to global markets that did not feel as secure during the 2025 panic. That surprising 6.6 million barrel inventory build reported in mid-March 2025 was a powerful early signal of underlying market softness, which was overshadowed by conflict. We are seeing echoes of that now, as the latest EIA report showed a surprise stock build of 1.4 million barrels last week, against forecasts for a draw. This signals that demand may be softer than anticipated, a trend supported by recent slowing industrial data from China. Given this tension between persistent geopolitical risk and a well-supplied physical market, traders should consider strategies that manage volatility. Buying out-of-the-money call options provides a cheap way to gain exposure to a sudden price spike from another flare-up, while still limiting downside risk. At the same time, selling bearish call spreads could be effective, capitalizing on the strong price resistance formed by high U.S. production levels. Create your live VT Markets account and start trading now.
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