Brent’s front-month contract rose 12% over the week as US–Iran tensions lifted risk premia, with most of the move concentrated on Monday and Tuesday after strikes resumed. Prices briefly pushed towards $91/bbl before easing back, while fresh risk emerged from Houthi threats of a maritime blockade on Saudi Arabia and earlier discussion of US fees linked to safe passage for commercial vessels. The rally also coincided with refined products staying tighter than crude, shifting the market’s focus to downstream stress.
Crack spreads strengthened across regions, up 22% in Asia and 12% in the US, pointing to greater concern in Asia about disruption through the Strait of Hormuz and potential product shortages. Inventory data indicated a 21 million barrel build in June, but it appeared concentrated in crude rather than refined products. Tanker tracking suggested crude now represents nearly 80% of Hormuz transit volumes, about five percentage points above pre-conflict levels, while LNG traffic continued to lag, reinforcing a crude-led recovery narrative.
Derivative Strategies For Tight Refined Product Markets
We advise derivative traders to aggressively target crack spreads in the coming weeks, particularly in Asia and the US where refined product supplies remain exceptionally tight. With Asian crack spreads recently surging by 22% and US spreads up 12%, the options market is heavily underpricing the shortage of finished fuels compared to crude. Historically, when global refinery utilization rates hover near 90% during geopolitical supply shocks, refined product options offer much stronger risk-adjusted returns than simple crude plays.
Capitalizing On Geopolitical Volatility And Product Scarcity
We also see a prime window to buy out-of-the-money Brent call options as the market remains surprisingly complacent about escalating threats around the Strait of Hormuz. Although Brent temporarily spiked toward $91 a barrel before easing, a maritime blockade could instantly disrupt the 20 million barrels of oil that flow through this vital chokepoint daily. We recommend capitalizing on today’s relatively low implied volatility before another sudden escalation in the Middle East triggers a violent price spike.
Traders should also structure calendar spreads to exploit the widening divergence between crude accumulation and refined product scarcity. Recent data shows a massive 21-million-barrel global inventory build, but because this increase consists almost entirely of unrefined crude, prompt-month product contracts are poised to trade at a steep premium. We suggest positioning for continued backwardation in diesel and gasoline futures as refined products continue to lead the energy sector’s recovery.
