Supply Tightness And Refinery Impacts
The report said this has kept supplies tight for Asian refineries. It also said it has capped refined product output. In market moves, West Texas Intermediate (WTI) was up 0.75% at $97.93 at the time of writing. With WTI crude oil pushing towards $100 per barrel, we see this supply cut as a clear signal of continued price strength. The disruption at the Strait of Hormuz, a chokepoint for roughly a fifth of global petroleum consumption, is not a short-term issue. We are primarily looking at buying out-of-the-money call options on May and June futures contracts, targeting strike prices of $105 and $110. This geopolitical conflict introduces extreme uncertainty, meaning we must also prepare for sharp price swings in either direction. Implied volatility in the options market has likely surged, with the OVX index probably trading above 50, a level indicating significant market stress. To profit from this volatility, we are considering long straddles, which will be profitable if the price makes a large move up or down.Brent Wti Spread Strategy
The disruption is specific to Middle Eastern crude, which is priced against the Brent benchmark, more so than the US-based WTI. Therefore, we expect the price gap between Brent and WTI to widen considerably in the coming weeks. A long Brent-WTI spread trade appears to be a well-defined strategy to isolate the impact of this regional crisis. Since the supply cut directly affects Asian refineries and their output of refined products, we anticipate a rise in gasoline and diesel prices. This will likely expand the “crack spread,” which represents the profit margin for refiners. We are positioning for this by taking long positions in gasoline futures relative to WTI crude futures. Looking back at the nearly 20% single-day price jump after the attacks on Saudi facilities in 2019 gives us a reference for how quickly this market can move. Furthermore, with US strategic petroleum reserves still recovering from the large releases seen between 2022 and 2024, the global supply cushion is thinner than it has been historically. This leaves the market more vulnerable to shocks like the current one. Create your live VT Markets account and start trading now.
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