Conflict Duration Drives Market Response
On the Strait of Hormuz, Bessent said the US believed Chinese ships had left the area. He also said it was “very likely” there would be a successful completion of “301”. Bessent said the US has not intervened in oil markets. His comments were made during an interview with CNBC. The duration of this conflict is the main variable we must watch, creating significant uncertainty for oil prices. We are looking at a supply deficit between 10 and 14 million barrels, which is an unprecedented shortfall for the global economy. For context, the entire production of a major producer like the UAE is only around 4 million barrels per day. With this level of geopolitical risk, we have seen implied volatility on front-month crude options surge past 60, a level not seen since the market disruptions of early 2022. This suggests that buying long-dated call options to gain upside exposure is a primary strategy. Traders should be prepared for sharp price swings based on daily headlines from the region.Risks And Triggers For Price Reversal
The report that Chinese ships are avoiding the Strait of Hormuz signals that the physical market is already seizing up. This is causing a severe backwardation in the futures market, where the price for immediate delivery is much higher than for delivery in several months. We saw a similar, though less extreme, spread blowout back in 2025 during the initial Red Sea shipping disruptions. While the fundamental picture points to much higher prices, possibly reaching $150, two key risks exist for long positions. The possibility of strategic petroleum reserve releases or other government intervention, though not yet acted upon, could create a sudden drop in prices. Furthermore, any news hinting at the “successful completion of 301” could resolve the conflict faster than expected, triggering a sharp reversal for those over-leveraged on the long side. Create your live VT Markets account and start trading now.
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