WTI, the US crude oil benchmark, traded near $105.00 in Asian hours on Monday, reaching its highest level in almost four years. Traders are awaiting the American Petroleum Institute (API) report due on Tuesday.
US President Donald Trump said on Sunday that the US will target Iran’s power plants and bridges on Tuesday if the Strait of Hormuz is not reopened. Iran’s foreign ministry said Iran would respond with attacks on comparable infrastructure owned by the US or linked to it.
Strait Of Hormuz Supply Shock
The Strait of Hormuz carries about 20% of global oil and is effectively closed amid the US-Iran conflict. This has tightened physical supply and pushed up WTI prices.
OPEC+ said on Sunday it plans to raise oil output by 206,000 barrels per day in May. The group will meet again on May 3 to decide on further steps.
The escalating conflict has removed a significant portion of global oil supply, making extreme price volatility the primary factor for the coming weeks. We are seeing the Crude Oil Volatility Index (OVX) touch levels not seen since the banking sector turmoil back in early 2025. Traders should therefore use options strategies that profit from large price swings, as the situation could either escalate dramatically or see a sudden diplomatic resolution.
With the Strait of Hormuz, a chokepoint for nearly 21 million barrels per day, now blocked, the physical market is exceptionally tight. The minimal production increase from OPEC+ offers little relief, especially as U.S. Strategic Petroleum Reserves are still hovering near 40-year lows of around 360 million barrels. This fundamental shortage supports positioning for higher prices, making bull call spreads or buying far out-of-the-money calls a viable strategy targeting the $120-$130 level last seen in 2022.
Risks And Trading Focus
However, we must watch for signs of demand destruction, as sustained high prices act as a tax on the global economy. The most recent March 2026 inflation reports from the U.S. and Europe already showed a worrying uptick, and a prolonged oil shock could tip fragile economies into recession. A sharp economic downturn would ultimately lead to a collapse in oil demand and prices later in the year.
The immediate focus is on Tuesday’s deadline from the US and the subsequent American Petroleum Institute inventory report. While the inventory data is important, it will be completely overshadowed by any military action or lack thereof in the Middle East. This makes trading short-dated weekly options a high-risk approach to capitalize on the binary outcome of the impending ultimatum.
