Oil prices have stayed volatile, with Iran-related risks and supply disruptions in the Persian Gulf keeping the market in wide trading ranges. Prices moved sharply after stronger rhetoric from President Trump, then reports of a temporary US sanction waiver on Iranian oil until a US-Iran agreement is reached.
The US also extended a waiver that had expired over the weekend, allowing the sale of Russian oil floating at sea for another 30 days. The waiver allows sales until 17 June and is intended to stabilise oil markets amid losses in the Persian Gulf.
China Data Signals Softer Demand
Data from China showed weaker activity in crude processing and demand measures, partly linked to inventory drawdowns. Refineries in April processed 13.35m b/d of crude oil, down 5.8% year-on-year and the lowest level since August 2024.
The oil market is stuck in a volatile tug-of-war, with Brent crude currently hovering around $85 a barrel. Geopolitical tensions are keeping a floor under prices, but signs of weakening demand are putting a cap on any significant rally. The CBOE Crude Oil Volatility Index (OVX) reflects this uncertainty, having climbed to 35 in recent weeks.
We see that the supply risks mentioned last year, especially concerning Iran, remain a primary driver of price swings. Fresh reports of naval drills near the Strait of Hormuz are adding a risk premium, reminding us of the aggressive rhetoric and disruptions we saw back in 2025. This situation makes the market highly sensitive to headlines, with the upcoming OPEC+ meeting in June adding another layer of supply-side uncertainty.
On the other hand, the demand picture is not convincing enough for a sustained price increase. While we saw Chinese refinery runs drop significantly in April of 2025, recent data for April 2026 shows only a modest recovery in crude imports to 11.5 million b/d. A surprise crude inventory build of 2.5 million barrels reported by the EIA last week in the US further suggests that supply is currently outpacing immediate consumption.
Options Strategies For High Volatility
Given this environment of high implied volatility, traders should consider strategies that benefit from large price movements rather than picking a firm direction. Long straddles or strangles could be effective to capture a sharp break in either direction caused by a geopolitical event or a surprising economic data release. Using options to define risk is critical, as trading futures outright is dangerous in this whipsawing market.
We remember well how the market reacted in 2025 to the conflicting headlines about sanctions and waivers. That period serves as a clear reminder of how quickly sentiment can reverse, punishing those with unprotected positions. The extension of waivers on Russian oil, similar to the one we saw last year, shows that policy decisions can unexpectedly add supply to the market and temper bullish enthusiasm.
