West Texas Intermediate (WTI) ended a three-session rise and traded near $90.20 a barrel in Asian hours on Friday, yet it remained on course for a weekly gain of more than 10%. Price action tracked rising concerns over oil supply disruption as conflict risk in the Middle East intensified.
The United States extended its campaign to a 13th straight day of strikes against Iran, while both sides ruled out near-term talks. Further pressure followed threats of “major military punishment” against Iran and Houthi forces in response to any further attacks on Red Sea shipping, alongside remarks about a possible “massive attack” on Iran. Iran-aligned Houthi militants had struck two Saudi oil tankers in the Red Sea, a route used as an alternative export corridor for Saudi Arabia as fighting hampers vessel movements through the Strait of Hormuz. Asian importers began discussing diversions via the Suez Canal and around Africa, while the Caspian Pipeline Consortium halted loadings at its Black Sea terminal after tanker attacks, cutting off about 80% of Kazakhstan’s oil exports.
Options Strategies Amid Heightened Oil Volatility
With WTI crude hovering around $90.20 after a massive 10% weekly surge, we advise derivative traders to brace for extreme volatility by securing long call options. The escalating conflict in the Middle East and the sudden suspension of the Caspian Pipeline mean that oil prices could easily test the $100 mark in the coming weeks. We believe buying out-of-the-money call options is a prudent way to capture this explosive upside while strictly limiting downside risk.
Market Impact Of Threatened Oil Supply Routes And Supply Shocks
To understand the gravity of this disruption, we must look at the sheer volume of oil passing through these threatened trade routes. Historically, the Strait of Hormuz and the Red Sea handle over 20 million barrels of oil per day, representing about 20% of global petroleum consumption. Rerouting these shipments around Africa adds up to 14 days to transit times, which historically triggers a massive spike in tanker freight rates and immediate spot prices.
Furthermore, the Caspian Pipeline Consortium’s shutdown removes roughly 1.2 million barrels per day of Kazakh crude from the market, representing over 1% of global supply. During similar supply shocks in 2022, WTI prices spiked past $120 per barrel in a matter of weeks due to fear of prolonged deficits. We recommend using bull call spreads to manage the high implied volatility premiums that are currently pricing into crude options.
We also suggest that traders focus on crude oil calendar spreads, specifically buying front-month contracts and selling further-out months. This backwardation strategy typically excels during acute physical supply squeezes when immediate delivery demands a heavy premium. Given that diplomatic talks are currently ruled out, this near-term delivery premium is highly likely to widen significantly.
