WTI traded near $103.20 on Tuesday, up 1.16% on the day and rising for a fourth straight session. Prices stayed supported as markets priced in a geopolitical risk premium tied to possible supply disruption, despite temporary easing in Middle East tensions.
US President Donald Trump said on Monday that he paused a planned US military attack on Iran. Reports said the pause followed calls for de-escalation from leaders of Qatar, Saudi Arabia and the United Arab Emirates (UAE).
Geopolitical Risk Premium
Trump said negotiations with Tehran were taking place, while the US remained ready for a large-scale operation if talks fail. Tensions between Washington and Tehran have pushed prices higher in recent days.
The Strait of Hormuz remained a focus because it is a major route for global oil flows. Iran’s nuclear programme and sanctions continued to be barriers to a lasting agreement.
India raised petrol and diesel prices by 87 and 91 paise per litre, aiming to offset losses from higher global crude costs. India is the world’s third-largest oil importer.
WTI stands for West Texas Intermediate, a US-sourced crude traded via the Cushing hub, and is often described as “light” and “sweet”. Its price is shaped by supply and demand, geopolitical events, OPEC decisions, the US Dollar, and weekly inventories from API and EIA; their results are within 1% of each other 75% of the time.
Options Strategy Considerations
With WTI currently trading near $88.50, we see the market pricing in a significant geopolitical risk premium. This is driven by renewed tensions in the Strait of Hormuz, reminding us of similar volatility spikes. We should therefore consider buying short-term call options to capitalize on potential headline-driven price jumps.
However, any signs of de-escalation, such as the UN-brokered talks scheduled for next week, could quickly erase this premium. This suggests that selling out-of-the-money puts could be a viable strategy to collect premium on the assumption that a full-scale conflict will be avoided. This situation is very similar to what we observed back in 2025, when President Trump’s diplomatic overtures toward Iran temporarily capped oil’s upside.
On the demand side, fundamentals appear strong, which should provide a floor for prices. Recent data showed China’s manufacturing PMI hitting a six-month high of 51.2, suggesting robust energy consumption from the world’s largest importer. This underlying demand strength argues against taking overly bearish positions.
This view is supported by the latest supply data from the Energy Information Administration (EIA). Last week’s report revealed a larger-than-expected crude inventory draw of 3.1 million barrels, signaling that demand is currently outpacing supply. We must watch this Wednesday’s report closely to see if this tightening trend continues.
Looking ahead, the upcoming OPEC+ meeting introduces another element of uncertainty. There are credible rumors of a rift between Russia and Saudi Arabia on maintaining production cuts into the third quarter. Any indication that the group might increase output could place a ceiling on prices, making long-dated call options risky.
