Both Iran and Israel are military powers in the Middle East, and a large-scale military conflict between them would have a significant impact, particularly on the Crude Oil Product market.
As the conflict between Iran and Israel continues to escalate, global funds are flowing into the crude oil market to go long, with a total trading volume of 0.681 million options in the US crude oil options market on June 13, and there was also large-scale trading of $80 call options. The market is actively pricing in the potential impact on crude oil supply from the situation in the Middle East, leading to significant premium in crude oil prices under the geopolitical conflict risk, and potential bypass costs have also risen.
Funds are flowing in to go long on oil prices.
The outbreak of the Iran-Israel conflict has caused a major shock in global markets. On June 13, local time, New York Crude Oil initially surged over 14% before retracting, while safe-haven assets like gold have clearly risen, and global stock markets have collectively declined. By the close, $Crude Oil Futures (JUL5) (CLmain.US)$ the price closed up more than 7.5%, quoted at $73.18 per barrel, marking the largest single-day increase since March 2022. Meanwhile, the US crude oil ETF rose 6.89%, reaching a new high in five months.
According to the latest research report from JPMorgan's chief commodity strategist, the current oil price has at least partly reflected the geopolitical risk premium—current crude oil prices are slightly above $70. This implies that the market has priced in a 7% probability of the 'worst-case scenario', under which oil prices would rise exponentially rather than linearly, and the impact on the supply side could far exceed the reduction of 2.1 million barrels per day in Iranian crude oil exports.
The report suggests that the current market focus is on the potential escalation of conflict that could lead to the closure of the Strait of Hormuz, or a full-scale escalation of war in the Middle East triggering retaliatory reactions from the major oil-producing countries in the region—these countries contribute to one-third of global oil production. JPMorgan estimates that if such an extreme situation occurs, oil prices could soar to $120-130 per barrel.
Previously, concerns about disruptions in Middle Eastern oil supply escalated, driving the scale of funds betting on rising Crude Oil prices to continue increasing rapidly. According to the U.S. CFTC data, as of the week ending June 10, the net long positions held by speculators in NYMEX WTI Crude Oil increased by 16,056 contracts to 179,134 contracts, reaching a 19-week high. Data from the Intercontinental Exchange shows that, for the week ending June 10, the net long positions in Brent Crude Oil increased by 29,159 contracts to 196,922 contracts, setting a 10-week high.
After the conflict in Iran, investors heavily bought Crude Oil call Options, betting that oil prices would further rise to $80. CME Group data shows that on Friday, June 13, the trading volume of Crude Oil call Options expiring in August 2025 with a strike price of $80 reached 33,411 contracts, setting a single-day record since January this year, while the total trading volume in the oil options market on that day was as high as 0.681 million contracts.
This is the first instance of such large-scale $80 call Options trading since January 10. On January 10, the trading volume of $80 call Options expiring in February 2025 was 17,030 contracts, with a total trading volume of about 0.302 million contracts. The significant Inflow of funds indicates that the market is actively pricing the potential impact on Crude Oil supply due to the situation in the Middle East, and the $80 oil price is gradually becoming a new target of focus for investors.
The prices of oil tankers are also rising.
In addition to the rising oil prices, ETF products related to Crude Oil pricing are also soaring. On June 13, Beijing time, influenced by news related to geopolitical conflicts, the entire oil and gas Sector ETF in the A-shares market collectively surged, primarily tracking the symbol from the international market. $Harvest S&P Oil & Gas Exploration & Production Select Industry ETF(QDII) (159518.SZ)$ rose by over 6%, primarily tracking the symbol from the domestic market. $Energy and chemical industry (159981.SZ)$ After a significant increase of 7%, it has retreated to a gain of 3.25%.
Additionally, the market is concerned that Iran may block the Strait of Hormuz in retaliation. As the third-largest oil producer in the Organization of the Petroleum Exporting Countries (OPEC), Iran controls the most vital oil passage in the Middle East—the Strait of Hormuz. This strait accounts for nearly 40% of global oil export supplies, and if the conflict between Israel and Iran results in the closure of this strait, crude oil prices are expected to rise sharply in a short period.
Influenced by the expectation of interruptions in oil supply from the Middle East, on June 13,$Baltic Dry Bulk Index (BDI) (LIST0432.SH)$ rose by 3.36%, reporting 1968 points, reaching a new high since early October last year. Over the past month, the BDI index has accumulated a gain of 54%.
The benchmark tanker freight rates have soared. According to data from brokerage firm Marex Group Plc., forward freight agreements (betting on the future cost of Middle Eastern crude oil shipped to Asia) surged by 15% on July 13, reaching $12.83 per ton at one point. Afterward, it retreated somewhat, but the final increase still reached 12%.
Looking back at history, during the Iran-Iraq War from 1984 to 1988, although the Strait of Hormuz was not completely closed, many commercial vessels were attacked, and the risk of navigation significantly increased, causing tanker freight rates to rise by 50%-100% due to factors such as war insurance premiums and rerouting costs. Clearly, if the Strait of Hormuz is blocked, the expected impact will be no less than that of the outbreak of the Russia-Ukraine conflict. Both oil prices and crude oil freight rates will be injected with substantial premium portions. These premium portions account for war risks and rerouting costs.
Editor/rice
