Yemen\u2019s Houthi movement said on Monday it was imposing a naval blockade on Saudi Arabia, according to a Reuters-reported statement. The group\u2019s military spokesperson said the measure takes effect immediately and framed it as a maritime embargo, but offered no detail on enforcement.<\/p>\n\n
WTI crude rose on the headline, rebounding from daily lows below $80 to trade around $81.35 at the time of writing, though it remained down 0.48% on the day. WTI, or West Texas Intermediate, is a US-sourced \u201clight\u201d and \u201csweet\u201d crude benchmark distributed via the Cushing hub. Its price is driven by supply and demand, with OPEC production policy and the US Dollar among key inputs. Weekly inventory data from the API, published every Tuesday, and the EIA, released the day after, can also move prices; the two are typically within 1% of each other 75% of the time, while OPEC comprises 12 oil-producing nations and OPEC+ adds ten non-OPEC members, including Russia.<\/p>\n\n
With WTI spiking to $81.35 following the Houthi blockade announcement, we expect a sharp increase in near-term oil market volatility. For derivative traders, this sudden geopolitical risk means front-month options will experience a surge in implied volatility, making long call options and bull call spreads highly attractive. Historically, sudden escalations in the Red Sea region have caused crude option premiums to rise rapidly, and we advise positioning ahead of further premium expansion.<\/p>\n\n
We suggest utilizing calendar spreads, specifically buying near-month WTI contracts and selling deferred months to capture the widening backwardation. When physical shipping threats rise, immediate supply becomes highly prized, causing the front-month price to trade at a premium to later months. During the Red Sea shipping disruptions in early 2024, similar prompt-month spreads widened by several dollars, a trend we expect to repeat over the next few weeks.<\/p>\n\n
Our bullish bias is supported by tight global inventories, especially since the U.S. Strategic Petroleum Reserve remains historically low at around 375 million barrels, offering limited protection against supply shocks. At the same time, OPEC+ has maintained tight output controls, meaning there is very little spare capacity ready to offset Middle Eastern disruptions. This lack of a supply cushion means that even a partially successful blockade could quickly propel WTI toward $90.<\/p>\n\n
To manage the immense risks of this situation, we recommend using disciplined stop-losses on any straight futures positions to protect capital. Out-of-the-money call options remain our preferred vehicle, as they limit downside risk while offering uncapped upside if the conflict escalates. We must also watch the upcoming EIA inventory report this Wednesday, as a larger-than-expected crude draw will likely accelerate this upward momentum.<\/p>\n\n\n\n