West Texas Intermediate (WTI) was trading at $89.40 on Monday, about $3 above last week’s close and back above $89.00, as markets tracked renewed hostilities in the Middle East. The US carried out strikes on Iranian military sites, while Iran said it had targeted a US base; Kuwait also reported intercepting missiles and hostile drones. Separately, Israel intensified operations in Lebanon and announced attacks on Beirut’s southern suburbs, even as an April ceasefire remains in place and talks between Lebanon and Israel are scheduled this week. A correction issued on 1 June at 08:09 GMT clarified that Benjamin Netanyahu is Israel’s Prime Minister.
Supply risks were reinforced by disruption to shipping through the Strait of Hormuz, described as a key route for about 20% of global crude supply and now practically blocked. Prices remain below $100, but the International Energy Agency said accessible commercial oil reserves could fall to “operational stress levels” by mid June. WTI, one of three main crude benchmarks alongside Brent and Dubai Crude, is a light, sweet grade sourced in the US and distributed via the Cushing hub, while its price is shaped by supply-demand dynamics, geopolitical disruption, OPEC quota decisions, the US Dollar, and inventory data from API and EIA; the agencies’ figures are usually within 1% of each other 75% of the time, and OPEC comprises 12 nations.
Positioning For Further Upward Movement Amid Geopolitical Risks
With WTI crude oil now above $89 a barrel, we are positioning for further upward movement. The escalating conflict between the US, Iran, and Israel is creating significant supply-side risks that the market is just beginning to price in. We see the current momentum as a strong indicator of a sustained rally.
The International Energy Agency’s warning about reserves reaching stress levels by mid-June is a critical catalyst for us. This view is reinforced by last week’s EIA report, which showed a crude inventory draw of 4.2 million barrels, far exceeding analysts’ expectations of a 1.9 million barrel draw. This tightening of physical supply provides a solid foundation for higher prices.
Tactical Approach: Options And Volatility Amid Supply Squeeze
Given the expected increase in volatility, we see value in buying call options to capture the upside while defining our risk. We are looking at call options with strike prices around $95 and $100, targeting the upward momentum in the coming weeks. These options allow us to benefit from a potential sharp price spike without the full exposure of a futures contract.
This situation is reminiscent of past geopolitical shocks that have impacted oil supply. During the onset of the conflict in Eastern Europe in early 2022, WTI prices surged over 30% in less than a month, a pattern we could see repeated if tensions do not de-escalate. History shows these events can lead to rapid and significant price re-evaluations.
We will be closely monitoring any news out of the Strait of Hormuz, as any prolonged blockage directly threatens about 20% of the world’s supply. The upcoming API and EIA inventory reports this Tuesday and Wednesday will be crucial indicators to confirm if this supply squeeze is worsening. Another significant draw in inventories would likely push prices through the next level of resistance.
