Supply Disruption And Flow Constraints
Floating storage outside the Middle East has fallen by up to 35%, or 33m barrels, since the conflict began. In Asia, all excess floating inventory above the five-year average has been used up, increasing reliance on onshore stocks in coming weeks if flows do not resume. The IEA strategic petroleum reserve release rate is estimated near 3m b/d. The first US SPR release allocated 45.2m barrels out of 86m awarded, with exchange structure and curve and basis risk limiting demand. Limited bypass capacity via Yanbu and Fujairah is noted as a constraint if Hormuz remains restricted. Benchmark oil prices are expected to rise sharply unless Hormuz reopens soon. We are facing an extreme supply shortage with Gulf production cuts now over 10 million barrels per day and the Strait of Hormuz effectively closed. The clear signal is for continued upward pressure on oil prices, as benchmark crudes like Brent have already surged past the $165 mark in recent trading sessions. This situation makes establishing and holding bullish derivative positions the most logical stance for the coming weeks.Derivatives Positioning In High Volatility
The buffer from floating storage has been almost completely exhausted, a drop of over 35% since this crisis began. Now, we’re seeing onshore inventories take the hit, with the most recent EIA data showing a weekly draw of 8 million barrels in the U.S. alone. This is creating severe backwardation in the futures market, rewarding those with long positions in near-term contracts. The announced IEA strategic reserve release of around 3 million barrels per day is failing to calm the market, as it barely covers a fraction of the daily supply loss. We’ve seen limited uptake in the US SPR exchange offers, partly due to logistical issues at terminals that are already congested. This lack of an effective countermeasure leaves the market exposed to the full force of the supply shock. Given the extreme price risk, buying call options on WTI and Brent is a primary strategy to capture further upside while defining risk. With oil volatility indices like the OVX trading above 80, these options are expensive, prompting many to use bull call spreads to lower the entry cost. We saw a similar, smaller-scale run-up in volatility during the Red Sea shipping disruptions in 2025, but the current situation is far more severe. Create your live VT Markets account and start trading now.
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