WTI extended losses for a fourth session on Monday, trading just under $94.00 in Europe and leaving the US benchmark almost 8% below last week’s highs. The move followed reports that Saudi Arabia lifted exports in September, which helped temper supply worries despite disruption to the East-West pipeline cited by CNBC from a JP Morgan report.
Security developments added cross-currents. The head of United States Central Command said shipments through the Strait of Hormuz hit their highest level in six months over the past two weeks, supported by US naval protection and mine clearance. Even so, prices held near the $100 area as Tehran-backed Houthi forces in Yemen launched missile and drone attacks on Riyadh, while the US and Iran traded threats, with the conflict approaching a seventh month. Saudi authorities said attacks on Yanbu and other sites were thwarted and reported no fresh damage to oil infrastructure.
Derivative Trading Strategies Amid Market Volatility
We recommend that derivative traders position themselves for a near-term recovery in oil prices as West Texas Intermediate (WTI) hovers just below $94. While strong Saudi exports have recently depressed prices by nearly 8%, the persistent geopolitical threats in the Middle East suggest this downward trend will soon stall. To exploit this, we should focus on selling out-of-the-money put options to capture high premiums while establishing a safety cushion near the $90 support level.
Hedging Approaches for Geopolitical Risk
Historically, when geopolitical risks threaten major energy corridors, price drops tend to be brief and aggressive reversals are common. For instance, global oil demand is projected to grow by over 1.2 million barrels per day, while global spare capacity remains highly concentrated. Utilizing bull put spreads allows us to generate steady income from this high-volatility environment while capping our potential losses.
Although shipments through the Strait of Hormuz—which carries roughly 20% of the world’s daily liquid energy supply—remain active under naval protection, the risk of escalation is high. We suggest adding long call options with a strike price near $98 to our portfolio to hedge against sudden supply disruptions from drone or missile strikes. This balanced setup ensures we profit from stabilizing prices while maintaining explosive upside potential if regional tensions worsen.
