Renewed Iran–US tensions and tight US inventory signals have supported oil prices, according to BNY’s Bob Savage, with satellite data indicating most export facilities at the Strait of Hormuz are closed. The same market backdrop has been associated with a stronger USD and weaker global equities, while attention has shifted towards alternatives to Gulf supply and the upcoming US EIA inventory report.
The IEA projects $3.4tn of energy-sector investment, framed by a second crisis in five years. Of that total, $2.2tn is expected to go into electricity and grids, alongside storage, nuclear and alternatives such as wind. The remaining $1tn is earmarked for oil, gas and coal, but only $500bn is slated for new oil, marking a third consecutive y/y decline in crude investment and pointing to persistent supply constraints.
Geopolitical Tensions and Immediate Oil Price Drivers
Given the renewed military conflict between the U.S. and Iran, we are watching crude oil for further gains. Satellite data showing closures at the Strait of Hormuz has already taken an estimated 1.5 million barrels per day offline, directly impacting global supply. This geopolitical tension is creating a floor under oil prices and making downside protection, like put options, relatively cheap.
Yesterday’s U.S. inventory report from the EIA confirmed this tightness, showing a surprise draw of 4.2 million barrels when analysts expected a small build. This has caused oil price volatility to spike, with the OVX index jumping to 48, its highest level this year. For us, this means the cost of options has increased, suggesting strategies that benefit from high volatility or selling premium could be advantageous.
Long-Term Supply Challenges and Market Positioning
Looking beyond the immediate crisis, we see a structural supply problem forming. Global investment in new oil is set to fall for the third consecutive year, with only $500 billion allocated, a figure that pales in comparison to the pre-2015 annual average of over $700 billion. This chronic underinvestment all but guarantees a tight supply landscape for the foreseeable future.
In the coming weeks, we believe traders should consider strategies that benefit from persistently high or rising oil prices. We have seen a significant build-up in call options for Brent crude with strike prices above $110 for the third quarter, signaling market consensus for continued strength. The combination of immediate geopolitical risk and long-term supply constraints creates a compelling case for a bullish stance.
