Oil Prices Supported By Infrastructure Risk
The report linked support for oil to the risk that war damage to energy infrastructure in Gulf countries may take time to repair. This could keep prices elevated even if hostilities ease. WTI traded near $89.24 at the time of writing and stayed above the rising 20-day exponential moving average near $86. The 14-day RSI stood at 58, with resistance near $99 and support near $86, then $82. WTI is a US crude benchmark, alongside Brent and Dubai, and is distributed via the Cushing hub. Its price is driven by supply and demand, geopolitics, sanctions, OPEC decisions, and the US dollar. US inventory reports from the API and EIA can move prices. Their results are usually similar, falling within 1% of each other 75% of the time.Lessons From The 2025 Oil Price Rally
Looking back at the situation in 2025, we saw oil prices rally strongly towards $90 a barrel due to direct conflict risks in the Middle East. The primary driver was the potential for lasting damage to energy infrastructure, a fear that kept prices elevated even during brief pauses in hostilities. This historical context provides a valuable lesson on how quickly geopolitical premiums can be priced into the market. Today, WTI crude is trading more moderately around $84, but similar tensions are brewing, this time focused on shipping security in the Strait of Hormuz. While direct US-Iran talks are not the focus, recent disagreements within OPEC+ about production quotas have added a layer of supply uncertainty. This has created a floor for prices, preventing any significant sell-offs over the past month. Recent data supports a tightening market, making the current price level sensitive to any new developments. Last week’s Energy Information Administration (EIA) report showed a surprise crude inventory draw of 2.8 million barrels, against expectations of a modest build. This indicates that underlying demand remains robust, even as global growth forecasts have been slightly trimmed. For traders, this environment suggests that buying call options could be a prudent strategy to gain upside exposure while limiting risk. Given the recent price action, May contracts with an $88 strike price offer a way to capitalize on any sudden escalation in geopolitical rhetoric or further supply disruptions. Implied volatility is currently hovering around 34%, higher than last quarter but not yet at prohibitive levels seen during the peak of the 2025 crisis. We must also consider strategies that mitigate the cost of these options, such as using bull call spreads. By selling a higher-strike call, for instance at $92, traders can finance the purchase of the $88 call and define their potential profit and loss. This is a disciplined approach in a market that remains sensitive to headlines. Remembering how quickly diplomatic conversations reversed sentiment in 2025, we should remain vigilant for signs of de-escalation. If WTI breaks below its 50-day moving average, currently near $81.50, it could signal a shift in momentum. In that scenario, purchasing puts or closing out bullish positions would be a necessary response to protect capital. Create your live VT Markets account and start trading now.
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