Supply Shock Compared With 1970s
Regional production outages are put at 7–10 million barrels per day, equal to up to 10% of global supply. Similar losses were last seen during the 1970s oil crises. OECD countries now hold state-controlled emergency reserves. These reserves could cover the loss of Middle East oil for a good three months if all other supply routes were not available. This suggests there is no immediate physical shortage. However, a long disruption through the Strait of Hormuz could keep oil prices high as market uncertainty continues. The article notes it was produced using an AI tool and checked by an editor.Trading Implications For Oil Markets
With up to 10% of the world’s oil supply now offline due to the Strait of Hormuz blockade, we are witnessing a supply shortfall not seen since the 1970s. Brent crude has already surged past $115 per barrel in reaction, a price level that signals intense market stress. In this environment, long positions via call options or front-month futures contracts are a direct way to trade the ongoing upward price pressure. The market’s anxiety is palpable, with the oil volatility index (OVX) now trading above 60, a clear signal of extreme uncertainty reminiscent of the market shocks we saw back in 2025. This high volatility suggests that strategies profiting from large price movements, regardless of direction, could be advantageous. Traders should therefore consider options structures that can capture explosive moves as geopolitical news develops. Although emergency reserves in OECD countries and China can cover the shortfall for about three months, this is not a permanent solution. Last week’s IEA data showed a drawdown of 18 million barrels from these strategic reserves, a pace that will quickly erode the market’s confidence if the crisis persists beyond a few more weeks. The faster these reserves are depleted, the higher the “fear premium” will become in oil prices. We are seeing this concern reflected in the futures market, which has flipped into a steep backwardation, with the April 2026 contract now trading at a $6 premium to the October 2026 contract. This structure indicates a desperate scramble for immediate barrels and presents an opportunity for calendar spread trades. Traders should anticipate this spread widening further as long as the blockade remains in effect. Create your live VT Markets account and start trading now.
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