Supply Routes And Shipping Risk
Iraq agreed to resume oil exports through Turkey’s Ceyhan port, which reduces reliance on routes linked to the Strait of Hormuz. Iran also allowed safe passage for certain vessels based on their affiliations, easing some near-term shipping concerns. Brent crude remained above $100, while daily volatility narrowed, according to Deutsche Bank. The bank also linked calmer trading to the Iraq–Turkey export deal and the use of alternative routes. US stock data pointed to weaker demand conditions. The API reported crude inventories rose by 6.6 million barrels, and the EIA reported a 6.16 million-barrel rise, the fourth weekly build in a row. The US sought to reopen the Strait of Hormuz, though allies declined to join. The US also issued a temporary Jones Act waiver to help move energy products and limit price rises.Positioning For Continued Volatility
We are seeing a classic tug-of-war between geopolitical supply risks and signs of weakening demand. The key for us is not to bet on one outcome but to position for the continued volatility. This environment makes simple directional bets risky, as prices could swing sharply on the next headline from the Middle East or a weak economic report. Given this uncertainty, we should look at options strategies that benefit from price movement. The oil volatility index, the OVX, has been elevated, recently trading around 45, indicating that the market expects significant price swings in the near future. This suggests that long straddles or strangles could be effective, allowing us to profit whether WTI crude breaks above $100 or falls back toward the low $90s. On the bullish side, any further escalation near the Strait of Hormuz, through which nearly 21 million barrels of oil pass daily, could send prices soaring. To prepare for this, we are considering out-of-the-money call options for May delivery, as they offer a low-cost way to capture upside from a major supply shock. We saw a similar dynamic during the Red Sea disruptions back in 2025, where targeted attacks on shipping immediately added a risk premium to prices. However, we must respect the bearish inventory data. Last week’s EIA report showed US crude stocks rising to 465 million barrels, the highest level since the fourth quarter of 2024, signaling that supply is outpacing current demand. This makes buying put options a necessary hedge to protect against a potential price drop if recession fears begin to outweigh the conflict premium. To manage costs and define our risk, using vertical spreads is a prudent approach in the coming weeks. For instance, a bull call spread would allow us to profit from a modest price increase while limiting our upfront premium cost. We remember how oil prices spiked above $120 after the conflict in Ukraine began in 2022, only to fall back later that year as global growth concerns took hold, reminding us that geopolitical rallies can be short-lived. Create your live VT Markets account and start trading now.
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