WTI US Oil rose to about $100.70 a barrel on Monday, up 13.70% on the day, after briefly topping $110 in the Asian session. It was the highest level since mid-2022. The move followed reports of US and Israeli strikes on Iranian facilities and Iranian attacks across the region. The situation raised fears of wider conflict and lower crude supply.

Strait Of Hormuz Supply Shock

Shipping through the Strait of Hormuz has been disrupted, and about 20% of global oil flows through it. Security concerns have reduced tanker traffic and led some Gulf producers to curb output as storage fills. The UAE, Kuwait and Iraq have started cutting production because exports are harder. Iran has appointed Mojtaba Khamenei as Supreme Leader, while Israel reported new strikes in central Iran and on Hezbollah infrastructure in Beirut, and drones were reported near energy sites. Prices eased from highs after reports the IEA is discussing a G7 release of emergency reserves, and Japan told storage sites to prepare. Technical levels cited include a 100-week SMA at $68.50, Fibonacci points at $71.99, $82.47 and $111.47, and a weekly RSI of 84.55. We are seeing WTI crude futures surge past $100 a barrel due to the escalating conflict threatening the Strait of Hormuz. This chokepoint handles over 20 million barrels per day, representing about 20% of global consumption, so any prolonged disruption creates a major supply shock. Derivative traders should consider long positions, such as buying call options or going long on futures contracts, to capitalize on this upward momentum. However, we must be cautious as the weekly RSI is above 84, signaling extremely overbought conditions that could lead to a sharp pullback. The G7’s discussion of a coordinated release from emergency reserves is a significant bearish catalyst, reminiscent of the 180 million barrel release we saw from the U.S. Strategic Petroleum Reserve in 2022. This could cap the rally or even reverse it temporarily, making it risky to chase the peak.

Trading Approaches And Risk Control

Given the high uncertainty, we see implied volatility in oil options spiking, which is very similar to what happened after the invasion of Ukraine in 2022. This makes strategies like call spreads attractive, as they allow for participation in further upside while defining the maximum risk. Traders holding long positions should also consider buying protective puts to hedge against a sudden price drop from a potential de-escalation or a large reserve release. We should also be watching the structure of the futures curve, which has likely flipped into steep backwardation with this supply shock. This means front-month contracts are trading at a significant premium to later-dated ones, reflecting the market’s immediate fear of a shortage. Trading calendar spreads to profit from this backwardation is a viable strategy for those who believe the disruption will be intense but perhaps not permanent. From a technical standpoint, the $82.47 level is now the critical line in the sand for the current bullish trend. As long as we hold above it on any pullback, the upward bias remains intact and dips can be seen as buying opportunities. However, a failure to break the next resistance at $111.47, combined with a drop below $100, could signal that the emergency reserve news is taking hold and the rally is exhausted. Create your live VT Markets account and start trading now.

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