West Texas Intermediate (WTI) extended gains for a third day, trading around $69.00 a barrel in Asian hours on Monday, yet crude remained close to four-month lows as traffic through the Strait of Hormuz steadied. After several tankers made unexplained detours on Saturday, shipping lanes through the chokepoint had normalised by Sunday, tempering security-driven risk premia. At the same time, expectations of extra barrels re-emerged, reviving concerns about a global supply glut.<\/p>\n
OPEC+ approved an output increase of 188,000 barrels per day for next month, led by Saudi Arabia and Russia, while the UAE and Saudi Arabia have pushed physical exports closer to pre-war levels, though some planned rises have been constrained by disruption linked to the US, Israel and Iran. Separately, Reuters reported Iran is in talks with Japanese firms to resume crude sales under a temporary US sanctions waiver. The waiver lasts 60 days, was granted on June 22, and is due to expire on August 21, with three Japanese buyers assessing purchases that would be their first since 2019.<\/p>\n
We see the current oil market as a tug-of-war between bearish supply fundamentals and bullish geopolitical risks. With WTI crude near four-month lows around $69, the recent OPEC+ output increase suggests a well-supplied market. However, the CBOE Crude Oil Volatility Index (OVX) has climbed to 38.5, reflecting deep uncertainty about stability in the Strait of Hormuz.<\/p>\n
The primary event to watch is the August 21 expiration of the US sanctions waiver for Iran. This deadline creates a clear binary outcome for supply, making long volatility positions attractive. We are looking at buying September options straddles, which would profit from a significant price swing in either direction following the waiver decision.<\/p>\n
On the bearish side, recent data supports fears of a supply glut, which would push prices lower if the Iran waiver is extended. The latest Energy Information Administration (EIA) report showed a surprise inventory build of 2.1 million barrels, contrary to market expectations of a draw. This situation mirrors the price slump seen in late 2024 after a similar series of OPEC+ production hikes initially outpaced demand growth.<\/p>\n
Conversely, the bullish case is supported by tangible risks in the Middle East, which would be amplified if Iranian barrels are removed from the market. War risk insurance premiums for tankers in the Strait of Hormuz were raised again last week, now costing an additional 0.2% of a vessel’s value, indicating that shippers see a real threat of disruption. This suggests any failure to extend the Iran waiver could send prices sharply higher as supply tightens immediately.<\/p>\n
Therefore, our initial strategy is to hold these volatility positions through July and early August. As we get closer to the August 21 deadline, we will watch for diplomatic signals from Washington and Tehran. Based on that news flow, we can adjust our positions to be more directional, aiming to capture a sustained move.<\/p>\n\n\n\n