TD Securities said commodity trading advisers (CTAs) are maximally long WTI crude, Brent crude, diesel and gasoline, as attacks on energy infrastructure in Saudi Arabia and Russia keep an upside risk premium embedded in prices. Supply concerns have risen after damage to Saudi Arabia’s East-West pipeline, and reports suggest parts of the system could stay out of service for three to five weeks; the prospect of further Houthi strikes adds another layer of disruption risk.
The bank also pointed to ongoing Ukrainian attacks on Russian refineries as a factor tightening diesel balances. Market conditions had been more balanced recently, with broader Middle East crude flows running at 80–90% of pre-war totals across routes and hubs including Hormuz, the Gulf of Oman, Oman, Fujairah and Yanbu, alongside reduced refinery runs. Even so, the risk premium has persisted, reflecting the chance that further supply curbs occur or that refinery throughput rebounds as Chinese demand improves.
Positioning and Market Risk Factors
We suggest derivative traders remain highly alert as Commodity Trading Advisors (CTAs) hold maximum long positions across WTI, Brent, and refined products. With major supply disruptions plaguing Saudi Arabia’s East-West pipeline and Russian refineries, the market’s upside potential remains heavily defended. However, because algorithmic funds are already fully invested, we must anticipate that any further price gains will be driven by physical supply shortages rather than new speculative buying.
Looking back at historical disruptions, like the drone strikes on Russian refineries in recent years that knocked out over 14% of their processing capacity, supply shocks can trigger rapid spikes in diesel crack spreads. Currently, the shuttering of the Saudi East-West pipeline threatens to keep substantial crude volumes off the market for the next three to five weeks. We believe this reduction in supply will severely test global inventory cushions, which are already running tight in several key trading hubs.
Trading Strategies and Market Outlook
For the coming weeks, we recommend that traders utilize options strategies, such as bull call spreads, to capture further upside while limiting risk in case of sudden profit-taking. Since volatility levels are currently the primary constraint on CTA buying, implied volatility is likely to rise, making outright long options expensive. Implementing calendar spreads on Brent or diesel can also help us capitalize on the immediate tightness expected before the pipeline repairs are finished in October.
We must also monitor global refinery demand, as any sudden pickup in import appetite from major Asian economies will immediately collide with these supply constraints. If the Saudi pipeline repairs face delays beyond the estimated five-week window, crude benchmarks could easily break past their recent resistance levels. Traders should maintain strict stop-loss discipline, as the market remains highly vulnerable to sharp, algorithmic-driven reversals if geopolitical tensions suddenly ease.
