WTI edged higher in Asian trading on Tuesday, changing hands around $69.20 a barrel after modest losses the previous day, as tensions briefly lifted prices following incidents in the Strait of Hormuz. A Bloomberg report, citing a US official, said Iran fired at least two missiles at commercial vessels late Monday; two ships were damaged and no casualties were reported. Separately, UK Maritime Trade Operations said a southbound tanker was hit on its port side by an unknown projectile, sparking a fire onboard.
Even so, WTI stayed near a four-month low as markets focused on expanding global supply and recovering shipping flows. Traffic through Hormuz has started to rebound, with data showing at least eight Japan-linked vessels, including five supertankers able to carry two million barrels each, exiting via a route near Iran. On pricing, Saudi Aramco cut Arab Light for Asian buyers by $11 a barrel to a $1.50 discount versus the regional benchmark, a move previously used only twice, in the 2015 and 2020 oil price wars, after OPEC+ agreed to raise production quotas for next month.
Short-Term Price Movements Driven by Geopolitical Events
We view the current price increase to around $69.20 as a temporary reaction to geopolitical noise. The attack in the Strait of Hormuz, while serious, does not appear to be altering the fundamental supply picture. Therefore, we are using this strength as an entry point to position for lower prices in the coming weeks.
The OPEC+ agreement to boost output adds significant barrels to a market already seeing robust supply. Current data from the U.S. Energy Information Administration shows American crude production is hovering near record highs of 13.2 million barrels per day. This backdrop of ample supply significantly weakens the impact of short-term disruptions.
Oversupply And Strategic Positioning
Saudi Arabia’s aggressive $11 price cut for Asia is a clear signal of a fight for market share, not price support. We have seen this strategy before in 2015 and again in 2020, both of which preceded significant and prolonged downturns in crude prices. This historical precedent suggests the bearish pressure from oversupply will likely dominate the geopolitical headlines.
Given this outlook, we are selling out-of-the-money call options with expirations in late July and August 2026. This strategy allows us to collect premium, capitalizing on the belief that prices will not sustain a rally and may even fall. The increased implied volatility from the Hormuz incident makes these option premiums particularly attractive to sell right now.
Traffic through the Strait of Hormuz is already showing signs of normalizing, which tells us the market is treating this as a contained event. The fundamental story remains one of expanding global supply, signaled by both OPEC+ actions and the Saudi price cuts. We expect these fundamental factors to reassert themselves and push prices lower once the current headlines fade.
