Donald Trump said he would tell Israeli Prime Minister Benjamin Netanyahu not to retaliate after Iran fired a missile salvo at Israeli targets, according to Reuters. The launches followed remarks on X by Iran’s parliamentary speaker, Mohammad Bagher Ghalibaf, who said the US “naval blockade and violation of agreements regarding Lebanon” breached the ceasefire. Israel’s military said it intercepted waves of missiles from Iran for the first time since early April, while Iranian officials said further attacks would follow if Israel continues its Lebanon offensive; an Israeli strike hit Beirut on Sunday during fighting with Iran-backed Hezbollah. CNN reported Trump also said Netanyahu would have “no choice” but to accept a deal with Iran, and that the strikes had not altered his aim of pursuing US-Iran negotiations.

Oil markets reacted quickly. West Texas Intermediate rose 2.83% to $90.85 on the day. WTI is a light, sweet US crude priced off the Cushing hub and commonly used as a benchmark alongside Brent and Dubai. Its price is driven by supply and demand, geopolitical disruption and sanctions, OPEC output policy, and the US dollar because crude trades largely in dollars. Weekly inventory data from the American Petroleum Institute and the Energy Information Agency can move prices; their results are usually within 1% of each other 75% of the time, and the EIA series is considered more reliable. OPEC has 12 members and meets twice yearly, while OPEC+ adds ten non-OPEC states.

Geopolitical Drivers and Market Volatility

We are seeing crude oil prices spike to over $90 a barrel on the initial news of direct conflict between Iran and Israel. However, the American push for de-escalation introduces significant uncertainty and could cap further gains. This creates a two-sided market where headlines, not fundamentals, are the primary driver for now.

This geopolitical tension has caused a sharp increase in implied volatility. The CBOE Crude Oil Volatility Index (OVX) jumped over 15% in the last session to 42.5, its highest level since late 2024. We believe this makes buying options expensive, but it presents opportunities for those looking to sell premium.

We anticipate the current geopolitical risk premium on WTI, which we estimate at $5-$7 per barrel, could erode quickly if diplomatic efforts succeed. The market’s focus will then shift back to fundamental drivers. Recent data from the Energy Information Administration (EIA) shows a surprise inventory build of 2.1 million barrels last week, suggesting demand might be softening ahead of the summer driving season.

Strategic Considerations and OPEC+ Outlook

We’ve seen this pattern before, such as after the 2019 attacks on Saudi oil facilities when prices spiked nearly 20% before quickly reversing. A similar rapid retracement is possible here if no further military action occurs. This history suggests caution against chasing this initial rally too aggressively.

Given the high implied volatility, we are looking at strategies that benefit from a potential price ceiling. Selling out-of-the-money call options or establishing bear call spreads on WTI futures could be prudent. These positions would profit if prices stabilize or fall as the de-escalation narrative takes hold.

We are also watching OPEC+ closely, as their next meeting is scheduled for July 1st. Any statements from key members indicating a willingness to use their spare capacity to calm markets would put significant downward pressure on prices. Their goal is often market stability, not a sustained price spike above $100.