Prospects for a near-term US–Iran deal to reopen the Strait of Hormuz have diminished after Iran set conditions over the weekend, including demands for reparations, and the US side responded with a fresh call for compensation payments for conflict victims. That shift has fed a conflict premium across oil markets, with refinery outage reports adding to the tension.
Brent crude rose 5% and by this morning was close to USD 90 a barrel, its first return to that level since the end of July. Gas oil moved faster, climbing almost 10% to just under USD 1,350 a tonne, the highest since the end of April, while the gasoil crack spread pushed back above USD 70 a barrel. Drone attacks on refineries in Saudi Arabia, Russia and Libya, alongside already tight diesel supply, are contributing to the rally and tightening global diesel availability even though Europe is not directly affected.
Energy Price Outlook and Derivatives Strategies
We advise derivative traders to position themselves for prolonged upward pressure on energy prices as geopolitical tensions in the Middle East solidify. With Brent crude already pushing toward $90 per barrel and gasoil approaching $1,350 per ton, buying call options on front-month contracts offers a high-upside strategy. Historically, disruptions in the Strait of Hormuz—which handles about 20% of the world’s daily petroleum liquid consumption—have triggered sustained double-digit percentage rallies in crude benchmarks.
We recommend going long on the gasoil crack spread, which has already breached the key threshold of $70 per barrel. Ongoing drone attacks on refineries across Russia, Saudi Arabia, and Libya are structurally capping global refining capacity. During previous refining crises, such as the supply shocks of late 2022 when European diesel crack spreads averaged over $50, derivative traders who rode the spread expansion saw massive gains.
Volatility Trading and Supply Risk Management
Given the highly unpredictable nature of the negotiations between the US and Iran, we suggest utilizing long straddle or strangle options strategies to profit from extreme price swings. Implied volatility in energy derivatives is bound to spike as both sides exchange steep compensation demands. Trading volume in oil options traditionally surges by up to 30% during such geopolitical standoffs, making liquidity highly favorable for entering and exiting positions.
Although European diesel markets are not directly hit by the localized refinery outages, we must brace for the inevitable tightening of global supply. Traders should consider long positions in ICE gasoil futures to hedge against a potential supply squeeze in Europe as winter preparations begin. Recent historical data shows that global diesel inventories in major trading hubs remain well below their five-year averages, leaving almost no buffer for further supply disruptions.
