Middle East tensions and refinery constraints are supporting higher oil prices. Brent moved 2% higher at the APAC open after a drone attack on a UAE nuclear site, stalled talks with the US, and shuttle diplomacy involving Pakistan, Qatar and Iran.
Brent testing $110 was a focus at the G7 Finance Meeting in Paris. There were also fears of airline shutdowns and limits on refinery capacity.
Uae Supply Disruptions And Export Rerouting
UAE crude output has fallen from over 3 million barrels per day (bpd) to 1.8–2.1 million bpd due to the regional conflict. The UAE is also pursuing policy changes linked to OPEC/OPEC+ and expanding routes that avoid the Strait of Hormuz.
The US has allowed a sanctions waiver on some Russian crude oil sales to expire, ending a short period of eased restrictions during tight global markets linked to the Iran war. US sanctions waivers affecting Russian and Iranian crude are also nearing expiry.
Abu Dhabi is accelerating the West–East pipeline project to double export capacity by 2027, aiming to bypass the Strait of Hormuz. This is intended to improve the reliability of export flows.
With Brent crude futures for July delivery pushing past $110, we see clear support from ongoing supply risks. The recent drone attack in the UAE and the broader Iran conflict are creating a floor under prices. The latest Energy Information Administration (EIA) report confirms a global inventory draw of 3.2 million barrels last week, reinforcing this tight supply narrative.
Options Positioning For Higher Prices
The expiration of U.S. sanctions waivers for certain Russian and Iranian crude sales is a significant bullish catalyst. This move effectively removes an estimated 1.1 million barrels per day from the legally accessible global market, a situation we haven’t seen since the initial post-invasion sanctions of 2022. We believe the market is still underpricing the full impact of this policy shift.
The sharp decline in UAE production, now hovering around 2 million barrels per day, is a major concern that justifies holding long positions. Their strategic pivot away from OPEC+ signals a new era of independent policy, adding another layer of uncertainty. This is reflected in the CBOE Crude Oil Volatility Index (OVX), which has surged to a six-month high of 58, indicating traders are pricing in significant price swings.
Given these factors, we see value in establishing or adding to bullish positions through call options on WTI and Brent contracts expiring in July and August. A bull call spread, buying the $115 call and selling the $125 call on Brent, could be a cost-effective way to target a move higher while capping risk. We are watching for any escalation in Middle East tensions as the primary trigger for the next leg up.
