Insights 
VT 
Oil prices are experiencing a rise due to the recent escalation between Iran and Israel. WTI crude initially increased to $77 following US actions against Iranian nuclear sites, now stabilising with a daily 1% increase. The conflict has led to increased market volatility as participants assess potential impacts on oil supply, especially through the Strait of Hormuz.
Iran, though a major OPEC producer, has seen its regional influence wane amidst long-standing tensions. Historically, threats to close the Strait of Hormuz have not materialised significantly, largely due to military presence from nations like the US.
Market Dynamics And Strategy
The fear of a “worst-case scenario” could cause abrupt price increases. However, should prices reach $90 or $100 per barrel, this may be seen as an opportunity to short, given the market dynamics. Previous supply issues have been overemphasised, and current geopolitical tensions, while urgent, may not imply a prolonged bullish market.
Oil prices are currently stabilising between $66 and $80. Therefore, any exaggerated market reaction to potential disruptions might be seen as opportunities to sell, adhering to the strategy of “buy value, sell hysteria.” The market remains aware of potential disruptions but responds cautiously.
What this all comes down to, really, is a balancing act between perception and reality. The initial upward movement in oil prices, sparked by the most recent military engagement, is not entirely unexpected. When physical threats to supply routes are reported, especially in politically sensitive regions, markets often respond instinctively. We’ve seen this before—news hits, futures spike, volatility rises. But in actual terms, disruption to output or transport seldom follows immediately.
It’s relevant here to note that oil prices, in spite of the inflammatory headlines and the geopolitical theatrics, are staying within a comfortably known range. That tends to indicate that while the worry is present, action based on real constraints to supply hasn’t materialised. So in effect, market participants are reacting, but not overreacting—at least, not en masse.
From our perspective, it helps to recognise that emotional energy does not necessarily translate into long-term price pressure. Short-term rallies, driven more by fear than by fundamentals, aren’t built to last. Yes, the Strait of Hormuz matters—about one-fifth of global oil passes through it—but the historical pattern suggests a high threshold before any prolonged blockage truly unfolds. That historical memory lingers in current pricing.
When observations like these stack up, it’s a reminder that any blip in valuation, especially in the top quartile of recent movement, may present itself more as an exit than an entry. If the market pushes WTI crude closer to or above $90, with no physical constraints backing that move, we would consider it ripe for a reversal. That’s not just speculation—it’s based on historical follow-through, or rather, the distinct lack thereof in comparable periods.
Trading Strategies During Volatile Periods
Now, derivative traders ought to bear in mind the importance of timeframes. When short-dated futures respond to news cycles, they tend to correct themselves rather quickly if the initial premise behind the movement fails to materialise. That kind of reaction becomes exploitable when open interest and volume grow disproportionately to the underlying shift in crude fundamentals.
Moreover, there’s a layer of optionality that increases during conflict periods. Premiums rise not because of a guaranteed blockage, but due to tail-risk hedging. When volatility spikes ahead of reason, strategies that harvest decay without directional exposure can benefit. These tend to outperform when implied expectations move well ahead of realised volatility.
The pattern is clear. Markets have priced in the fear, but not the follow-through. And that’s important—because the more restrained the physical reaction, the less sustainable the upward trend. We’ve also observed that attempts in recent history to test higher levels have been short-lived unless buoyed by real cuts in output or supply.
This environment, therefore, lends itself more to a stance that leverages reversion rather than breakout. Watching sentiment indicators, particularly the COT reports and options skew, is paramount in this setting. These often adjust faster than spot prices and can flag when positioning becomes unbalanced in one direction.
Volatility, while elevated, remains orderly. That matters. It implies there is no panic, but there is protection. In such conditions, fading extremes when sentiment collections peak can become a reliable approach. Not until something breaks materially—beyond noise—should new long exposure be even entertained.
For those scanning the technical picture, the repeated rejection near the top of the existing range speaks volumes. We continue seeing that the market prefers clarity. Without confirmation of a changed supply-demand picture, any push above previous highs is unlikely to be durable.
So while headlines might scream fire, the tape doesn’t follow suit immediately. Nor should we.
