WTI slipped after opening with a bullish gap, yet stayed in positive territory at about $90.50 a barrel during Asian trading on Monday. Prices had jumped after Iran fired multiple rounds of missiles towards Israel, a move that jolted energy markets and followed Israel’s renewed strikes on Lebanon despite an existing truce, with crude flows through the Strait of Hormuz still delayed. Israel’s military said all incoming missiles were intercepted and reported no casualties.
In the US, President Donald Trump criticised Israel’s strikes on Beirut and said he would urge Prime Minister Benjamin Netanyahu to avoid retaliation against Iran, while also calling on Tehran to return to negotiations. The near-closure of the Strait of Hormuz has curtailed supplies from the Persian Gulf and helped erase most of Friday’s losses. Separately, OPEC+ agreed on Sunday to raise July production quotas by 188,000 bpd, though members are struggling to meet current targets due to the Hormuz shipping disruption, and Russia’s capacity has been weakened by infrastructure attacks.
Geopolitical Tensions and Strait Of Hormuz Risks Drive Oil Prices
With WTI crude oil pushing past $90 per barrel, we see the market reacting primarily to severe geopolitical risk, not underlying fundamentals. The direct conflict between Iran and Israel, coupled with renewed Israeli strikes in Lebanon, makes the security of the Strait of Hormuz the single most important factor for energy prices. This situation creates a strong upward pressure on prices as long as military actions continue.
The near-closure of the Strait of Hormuz is a critical supply disruption, as historically over 20 million barrels of petroleum liquids pass through it daily, representing about 21% of global consumption. We have seen similar events cause extreme price moves, such as the 2019 attacks on Saudi facilities which caused Brent crude to jump nearly 15% in one session. This historical precedent suggests traders should be prepared for significant daily volatility and further sharp price increases on any news of escalating conflict.
We are largely discounting the recent OPEC+ decision to raise July production quotas, as the announcement is symbolic while the Strait of Hormuz remains a chokepoint. Major producers in the region are physically unable to get their existing output to market, making a small quota increase irrelevant to the immediate supply crunch. Russian production challenges further limit the group’s ability to add meaningful supply to the global market.
Trading Strategies and Market Outlook Amid Uncertainty
Given the high tension and supply risks, we believe bullish derivative strategies are appropriate for the coming weeks. Buying call options on WTI or Brent futures allows for participation in price spikes while defining downside risk to the premium paid. We are seeing implied volatility in crude oil options surging well past 50 on the CBOE Crude Oil ETF Volatility Index (OVX), reflecting the market’s extreme uncertainty.
Our focus will remain entirely on geopolitical developments rather than traditional inventory data. Any sign of a durable ceasefire or a confirmed reopening of shipping lanes through Hormuz would be a signal to aggressively take profits on long positions. Conversely, further military escalation would reinforce the bullish thesis, suggesting that holding or adding to these positions is the correct course of action.
