WTI, the US crude oil benchmark, traded near $103.60 in early Asian hours on Tuesday, up slightly above $103.50. The move followed increased market attention on a deadline set by US President Donald Trump for Iran to reopen the Strait of Hormuz.
On Monday, Trump said the latest US ceasefire proposal with Iran was “not good enough”. He also said Iran could be “taken out in one night” and that power plants would be left “burning, exploding and never to be used again”.
Strait Of Hormuz Tensions
Iran said it would respond by increasing attacks on energy infrastructure in the Gulf. The Strait of Hormuz remained closed, raising concerns about potential oil supply disruption in the Middle East.
OPEC+ agreed on Sunday to raise production by 206,000 barrels per day in May. It was unclear how extra supplies would reach global markets while the Strait stayed closed.
Traders also awaited the American Petroleum Institute report due later on Tuesday. A larger crude inventory draw can point to stronger demand, while a larger build can point to weaker demand or excess supply.
Looking back at the events of 2025, we are reminded of how quickly geopolitical tensions can add a significant risk premium to crude oil prices. The threats surrounding the Strait of Hormuz pushed WTI well above $103, a level driven almost entirely by fears of a severe supply disruption. This serves as a critical lesson on the market’s sensitivity to conflict in the Middle East.
Today, with WTI trading closer to a more stable $88 per barrel, the market seems to have forgotten the volatility of last year. However, the underlying risks have not vanished, and any renewed friction could cause prices to spike aggressively. This suggests that current options pricing may not fully account for the potential of a sudden geopolitical flare-up.
Hedging With Long Dated Calls
Given this memory of extreme price swings, we believe traders should consider buying long-dated call options to hedge against or profit from a sudden shock. In 2025, the CBOE Crude Oil Volatility Index (OVX) surged past 60 during the crisis, while today it sits at a calmer 34, making protective options relatively inexpensive. This strategy offers a defined-risk way to capture potential upside from unforeseen events.
The fundamental vulnerability remains the Strait of Hormuz itself, through which nearly 21 million barrels, or about 20% of the world’s daily supply, must still pass. The small OPEC+ production increase of 206,000 bpd agreed upon during last year’s crisis was meaningless while this chokepoint was threatened. This physical reality means that any disruption, no matter how brief, will have an immediate and outsized impact on prices.
Therefore, while we watch weekly data like the API reports for short-term inventory signals, the real focus should be on the bigger picture. Last year taught us that supply chain security is paramount and can instantly override traditional supply and demand fundamentals. Any trader not positioned for a repeat of that volatility is exposed to significant risk in the coming weeks.
