Crude Decisions
Oil markets are pricing geopolitics, not fundamentals. We lay out trade setups for both bulls and bears.
Oil is no longer trading on macro flows. Growth data, inventory builds, and even OPEC+ guidance have all taken a back seat to the one driver that matters right now: geopolitical escalation.
The weekend of June 22 marked a clear regime shift. For the first time in years, the US directly joined Israel in striking Iranian nuclear infrastructure. Iran’s response was restrained, and a fragile ceasefire has held, but the damage is already done. Oil no longer trades as a function of demand elasticity. It trades on proximity to Hormuz.
Goldman Sachs puts the current geopolitical risk premium in oil at $10–15/bbl, reflecting a market pricing in a meaningful probability of supply disruption. In escalation scenarios, they estimate a further $25+ upside, implying oil could clear $100–$120/bbl if the Strait of Hormuz is compromised (we shared our thoughts on this matter last week). Nearly 20% of global oil and LNG flows through that chokepoint. A sustained closure, while unlikely, would break the market's ability to clear at anything close to current levels.
“The market has not significantly changed the long-term outlook, but the next few months are highly path-dependent,” writes GS’s commodity team. “Call skew is elevated, volatility is bid, and upside optionality is in demand.”
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Positioning, repricing, and the fear of fear itself
Oil’s rally from $66 to $78 post-strikes wasn’t just about supply fears. It was also about the repricing of risk, the covering of shorts, and a sharp recalibration of positioning. As GS’s Jerome Dortmans notes, the pre-escalation oil market was complacent—short flat price, short volatility, under-hedged. That complacency was punished quickly.
The retracement back to ~$65 as the ceasefire took hold has done little to unwind the option market’s stress. Implied vols remain elevated. Skew remains bid. This is about the market being unwilling to leave its flank open.
Where do we go from here?
This isn’t a clean directional market, but more a probability tree (with our weighting more on the first option):
If tensions fade, the $10–15/bbl premium comes out fast. That puts crude back in the mid-$60s (as we have seen from actions this week), possibly even lower, especially if broader macro softness returns.
If hostilities reignite, oil doesn’t need a full-blown Hormuz closure to rally. Even surgical strikes on Iran’s export infrastructure or Saudi shipping lanes could be enough to push Brent to $90–100/bbl.
If the worst unfolds, mines in the Strait, missile strikes on tankers, a coordinated Gulf retaliation—GS sees a spike to $120–150/bbl as not only possible, but reasonable. In that world, oil becomes the new VIX.
Expressing biases
We don’t know the outcome. But we do know how to trade each scenario. Whether you see a path to de-escalation or a spiral toward conflict, there are smart ways to structure risk-reward.
Below, we lay out a set of trades that align with different oil biases—from bullish energy to geopolitical fade. Commodities, FX, and optionality are all on the menu.
Pick your narrative. Express your view.