Positioning For Further Upward Movement Amid Geopolitical Risks
With WTI crude oil now above $89 a barrel, we are positioning for further upward movement. The escalating conflict between the US, Iran, and Israel is creating significant supply-side risks that the market is just beginning to price in. We see the current momentum as a strong indicator of a sustained rally. The International Energy Agency’s warning about reserves reaching stress levels by mid-June is a critical catalyst for us. This view is reinforced by last week’s EIA report, which showed a crude inventory draw of 4.2 million barrels, far exceeding analysts’ expectations of a 1.9 million barrel draw. This tightening of physical supply provides a solid foundation for higher prices.Tactical Approach: Options And Volatility Amid Supply Squeeze
Given the expected increase in volatility, we see value in buying call options to capture the upside while defining our risk. We are looking at call options with strike prices around $95 and $100, targeting the upward momentum in the coming weeks. These options allow us to benefit from a potential sharp price spike without the full exposure of a futures contract. This situation is reminiscent of past geopolitical shocks that have impacted oil supply. During the onset of the conflict in Eastern Europe in early 2022, WTI prices surged over 30% in less than a month, a pattern we could see repeated if tensions do not de-escalate. History shows these events can lead to rapid and significant price re-evaluations. We will be closely monitoring any news out of the Strait of Hormuz, as any prolonged blockage directly threatens about 20% of the world’s supply. The upcoming API and EIA inventory reports this Tuesday and Wednesday will be crucial indicators to confirm if this supply squeeze is worsening. Another significant draw in inventories would likely push prices through the next level of resistance.Start trading now — click here to create your real VT Markets account.
