Oil Supply Risks Intensify
The United Arab Emirates, Kuwait and Iraq decided to reduce oil production due to threats to shipping through the Strait of Hormuz. With tankers avoiding the route, storage has tightened and producers are curbing output. WTI rose above $110, its highest since June 2022, and Brent climbed above $114. Brent later traded near $105, up about 15% on the day, while WTI was near $100, up 13%, after reports the IEA may coordinate an emergency reserves release among G7 members. Iran named Mojtaba Khamenei as the next supreme leader. Israel reported a new wave of attacks in central Iran and strikes on Hezbollah infrastructure in Beirut, while reports cited drone interceptions near Baghdad airport and Saudi Arabia’s Jawf region, plus smoke near Bahrain’s Bapco refinery. The USD Index rose 0.5% to 99.30 after gaining over 1% last week, and US equity futures fell 1.7% to 1.5%. Gold traded near $5,100, down about 1%; EUR/USD fell to near 1.1500 then around 1.1550 as Germany’s January industrial production dropped 0.5% month-on-month. China’s CPI inflation rose to 1.3% in February from 0.2%, USD/JPY moved towards 159.00 then 158.50, and GBP/USD fell over 0.5% below 1.3350.Market Implications For Traders
Looking back at the WTI price spike above $110 we saw this time last year, the market was in a state of panic. Today, with WTI trading steadily near $78 per barrel, it is clear that a significant geopolitical risk premium has been permanently priced in, a fact supported by recent EIA data showing global inventories remain below their 5-year average. This suggests options traders should now focus on strategies that benefit from stability, such as selling covered calls, as the extreme fear of early 2025 has given way to a more predictable, albeit elevated, price range. We recall the US Dollar Index surging to 99.30 during the initial crisis, but the lasting impact was the ensuing inflation shock. The Federal Reserve’s aggressive rate hikes throughout 2025 have since pushed the Fed Funds rate to 5.50% and lifted the DXY to over 104. With the latest US CPI report showing inflation holding at 3.1%, derivative markets are no longer pricing in further hikes but are intensely focused on the timing of the first rate cut. The energy crisis we witnessed in 2025 hit the European economy hard, helping to send EUR/USD down through the 1.1500 level. A year on, the pair continues to struggle near 1.0800, reflecting the stark policy divergence between a hawkish Fed and a more hesitant European Central Bank. This persistent gap suggests traders can use options to position for continued weakness in pairs like EUR/USD and GBP/USD. The move toward 159.00 in USD/JPY during last year’s turmoil was a clear signal of a flight to the dollar that never fully reversed. That trend has cemented itself over the past year, as the pair now regularly tests the 160.00 threshold due to the Bank of Japan’s refusal to abandon its loose monetary policy. The main play for derivative traders in the coming weeks is positioning for a sudden policy shift or government intervention, which makes buying volatility through straddles an attractive strategy. We remember that gold initially struggled to act as a safe haven, weighed down by the powerful surge in the US dollar. However, as persistent inflation became the dominant global narrative in late 2025, gold’s appeal as a store of value returned, pushing it to new highs. Traders should now view gold not just as a crisis hedge, but as protection against inflation proving stickier than central banks anticipate. Create your live VT Markets account and start trading now.
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