Brent crude reached its highest level in three weeks as the Strait of Hormuz remains effectively closed and US–Iran talks have stalled. Brent stayed above $100/bbl, with markets pricing a more persistent oil-driven inflation shock.
An Axios report said Iran had offered the US a new proposal to reopen the Strait of Hormuz. This may have limited the rise in prices at the start of the week.
Brent Rally Extends On Supply Shock
With no immediate progress, Brent rose during the day and closed up 2.75% at $108.23/bbl. That was the highest closing level since a two-week ceasefire was announced in early April.
Overnight, Brent increased a further 1.00% to $109.31/bbl. The move was also seen across the futures curve, with 6-month Brent futures up 1.79% to $88.01/bbl.
Brent has been above $100/bbl for nearly a week. This has brought inflation worries back into focus.
With Brent crude holding firmly above $100 a barrel due to the ongoing closure of the Strait of Hormuz, we see a clear signal for bullish positioning. The stalled US-Iran talks reinforce this view, suggesting this supply shock is not a temporary issue. Current tanker tracking data shows a 90% reduction in traffic through the strait compared to last month, confirming the physical tightness in the market.
Strategies For Volatility And Spreads
The futures curve is in steep backwardation, with front-month contracts trading at a significant premium to those six months out, which currently sit near $88 a barrel. This structure strongly incentivizes owning near-term contracts or selling longer-dated ones. We have not seen this level of sustained backwardation since the supply panic that occurred in late 2025 following the OPEC+ production cuts.
Given the geopolitical uncertainty, implied volatility in the options market is extremely elevated, with the CBOE Crude Oil Volatility Index (OVX) pushing past 50 this week. This makes outright buying of options expensive, so traders should consider using bull call spreads to limit premium costs while capturing further upside. Selling puts is exceptionally risky until there is a clear diplomatic breakthrough.
The persistence of high oil prices is reigniting broader inflation concerns that we saw subside earlier in the year. The 5-year breakeven inflation rate, a key market gauge of price expectations, has now risen to 2.8%, its highest level this year. This environment suggests positioning for higher interest rates, as central banks may be forced to delay any planned easing.
This crisis disproportionately affects Brent crude, creating opportunities in spreads against other benchmarks. The premium of Brent over WTI has widened to over $10 a barrel, a level not seen in over a year, as WTI is more insulated from Middle Eastern disruptions. Traders should look to position for this spread to remain wide or even expand further in the coming weeks.
