Oil\u2019s overnight rise, coupled with tech-led equity weakness, supported the US Dollar and lifted global bond yields, while gold eased. The move followed fresh concern over US-Iran tensions after Washington revoked its waiver for Iranian oil sales, a step taken after attacks on three vessels in the Strait of Hormuz. The backdrop keeps a security premium in crude, sustaining inflation and terms-of-trade risks.<\/p>\n\n
OCBC maintains its Brent profile, projecting USD75 per barrel by end-2026 and USD71 per barrel by mid-2027. The bank expects any downside to unfold gradually rather than repeat the sharp correction seen in 2Q26, with disruption risk expected to slow the pace of declines. Separate uncertainties include the lack of a clear route to fully securing the Strait of Hormuz and whether China increases imports further after reports of purchases of discounted Saudi crude, while US political considerations ahead of the November midterm elections may temper escalation.<\/p>\n\n—\n\n
We see oil prices gradually declining, but tensions in the Middle East will prevent any sharp drops in the coming weeks. The main risk holding prices up is the conflict around the Strait of Hormuz, which creates a security premium. This means the path down towards our year-end target of $75 per barrel for Brent will be slow and volatile.<\/p>\n\n—\n\n
Given this view, selling out-of-the-money call options on Brent crude futures for the late third and fourth quarters seems like a sound strategy. This approach profits from time decay and the expectation that prices will not surge significantly higher. A bear call spread, which involves selling a call and buying a further out-of-the-money call, would be a prudent way to limit risk from any unexpected price spikes.<\/p>\n\n
Recent data supports this cautious outlook. The latest U.S. Energy Information Administration (EIA) report showed a surprise build in crude inventories of 1.8 million barrels, signaling that demand may be softening. However, tanker tracking data shows shipping volumes through the Strait of Hormuz are down 5% month-on-month, keeping supply concerns alive and supporting prices above $80 for now.<\/p>\n\n
We should also consider buying long-dated puts to hedge against a faster-than-expected decline if the geopolitical situation de-escalates suddenly. This would protect our overall position if economic pressure on Iran works better than anticipated. This provides a safety net while we collect premium from our short call positions.<\/p>\n\n
Historically, we have seen similar patterns where geopolitical spikes are short-lived. For instance, following the attacks on Saudi Arabian oil facilities in September 2019, Brent prices jumped nearly 15% in one day but retraced the entire move within two weeks. We expect any rallies from skirmishes in the coming weeks to present good opportunities to sell into strength.<\/p>\n\n\n\n