Supply Disruption Risks
The report notes that prolonged shipping disruption could lead Gulf producers to shut in output. It adds that this could turn short-term disruption into longer-lasting supply losses. It also states that, even with mitigation measures, up to 10mb/d of available offsets would not cover a sustained closure of the Strait. Given the recent spike in crude toward $120 a barrel, we have seen the CBOE Crude Oil Volatility Index (OVX) surge to over 55, its highest level since the initial escalations in late 2025. This sharp rise in implied volatility makes outright buying of options expensive. Traders should therefore consider strategies like call or put spreads to manage premium costs while still positioning for sharp price movements. The market is currently balanced between supply fears and potential intervention. The US Department of Energy signalling a potential coordinated release from strategic reserves, possibly up to 30 million barrels, is placing a temporary ceiling on prices. We believe selling front-month futures contracts on spikes above $105 while monitoring de-escalation signals presents a short-term opportunity.Positioning And Hedging
The major upside risk remains the potential for prolonged shipping disruptions in the Strait of Hormuz, a chokepoint for roughly 21 million barrels of oil per day. The available global spare capacity of around 10 million barrels per day is not enough to cover a sustained closure. Therefore, holding some long-dated call options is a prudent hedge against a scenario where temporary disruptions become persistent supply losses. Our forecast is for Brent to remain elevated around the $100 per barrel mark through the middle of the year. This contrasts sharply with the relative stability we saw for much of 2025, when prices averaged closer to $82 per barrel. This new, higher floor suggests that selling cash-secured puts with strike prices in the low $90s could be an effective strategy to collect premium in this elevated range. While immediate risks are to the upside, we anticipate prices will ease toward $70 by early 2027 as global supply rebalances. This long-term bearish view suggests traders could begin to gradually build positions that profit from a decline. This could involve selling futures contracts for delivery in late 2026 or early 2027. Create your live VT Markets account and start trading now.
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