Oil prices rose by more than 5% on Thursday after two days of falls, following comments by US President Donald Trump about stepping up the war with Iran. Brent traded above $107 per barrel and WTI was near $106 per barrel on Thursday morning.
Even if shipping through the Strait of Hormuz restarts, a return to pre-war market conditions is expected to take time. The process would depend on upstream production restarting, logistics returning to normal, and inventories being rebuilt.
Market Repricing On Geopolitical Risk
US inventory data gave mixed signals. Gasoline stocks fell by 0.6 million barrels and distillate stocks dropped by 2.1 million barrels, alongside weak refinery runs and rising implied demand.
We are looking back at the sharp price rebound in 2025, when threats of an escalating conflict with Iran pushed Brent crude above $107 per barrel. This serves as a stark reminder of how quickly geopolitical risk can reprice the market. The current climate, with rising tensions in key shipping lanes, is beginning to feel uncomfortably similar.
The market has been relatively calm, but we see signs of change as the CBOE Crude Oil Volatility Index (OVX) has climbed to 38 in the last week, a significant jump from the low 20s seen in February. This uptick in expected price swings is directly tied to recent naval exercises disrupting traffic near the Malacca Strait. Traders should note that during the 2025 Iran crisis, the OVX spiked above 50, showing how much room there is for volatility to run.
The underlying supply situation adds to our concerns, making the market vulnerable to shocks. Last week’s EIA report showed a surprise inventory draw of 3.1 million barrels, tightening a market that many expected to be well-supplied through the second quarter. This thin safety cushion means any disruption, real or perceived, could have an outsized impact on prices.
Options Positioning For A Volatility Upswing
Given this backdrop, we believe purchasing near-term call options is a prudent strategy to position for a potential price spike. We saw how quickly implied volatility expanded during the 2025 event, making options purchased beforehand highly profitable. Consider bull call spreads to define risk while capturing upside movement if these new tensions escalate further.
