Crude oil edged lower on Monday as earlier expectations that a US waiver of sanctions on Russian oil exports could lift global supply began to fade. WTI slipped below $97.00 after touching $99.27 on Friday, yet it was still more than 8% higher on the month and nearly 40% above July’s lows. The pullback came as the market weighed whether the policy shift would translate into actual barrels, against the background of persistent geopolitical risk.
The executive order was signed on Friday, but the process appeared less settled after the Secretary of State asked on Saturday for more time to assess the situation. Separately, the UN’s top maritime official said attacks on vessels transiting the Strait of Hormuz had intensified, with reports of 24 ships attacked over the past two weeks, and the IRGC reported an oil tanker caught fire after striking a sea mine. Freight rates for supertankers moved to record highs and insurers raised fees, adding to transport costs and supporting crude prices.
Short-Term Price Outlook and Strategy for Derivative Traders
We advise derivative traders to prepare for a sharp near-term pullback in WTI crude oil as prices fall below $97.00 from Friday’s peak of $99.27. Although oil is still up more than 8% this month and almost 40% above July’s lows, expectations of increased global supply are driving prices lower. In the coming weeks, we suggest derivative traders consider short-term put spreads to capture this downward momentum.
Managing Volatility and Geopolitical Supply Risks
Uncertainty surrounding Washington’s sanction waivers on Russian crude continues to trigger sudden swings in market sentiment. Historical data shows that similar policy shifts often drive crude option volatility metrics above 40%, making unhedged positions particularly vulnerable. We recommend utilizing defined-risk option strategies, such as vertical spreads, to limit exposure while political leaders debate the decision.
Meanwhile, escalation along critical maritime routes remains a powerful counter-weight that could cap downside potential. The Strait of Hormuz facilitates roughly 21 million barrels of daily crude movement, meaning the 24 recent ship attacks and rising freight costs could quickly cause sudden price spikes. To guard against these supply shock risks, we advise traders holding short positions to maintain tight stop-losses or buy out-of-the-money call options as insurance.
