Brent put/call ratio hits 0.7 as Hormuz closure becomes base case

Brent crude options put/call open interest has fallen to a decade-low 0.7 as the Strait of Hormuz closure shifts from tail risk to the base case in oil markets, according to Bloomberg data.

"Resuming flows through the Strait of Hormuz remains the single most important variable in easing the pressure on energy supplies, prices and the global economy," the International Energy Agency said in its monthly oil market report on Tuesday.

The put/call ratio compares with a 1.27 average since 2021 and a 1.72 peak since the Russia-Ukraine conflict, a dramatic reversal in positioning. Brent futures traded at $98.60 a barrel at 0847 GMT, little changed from before the report. The IEA now forecasts an 80,000 bpd drop in global oil demand growth this year, reversing a 640,000 bpd rise projected in March, and sees supply falling 1.5 million bpd on average — a 2.6 million bpd swing from its prior forecast.

The agency estimates attacks on Middle East energy infrastructure and Iran's effective closure of the Strait of Hormuz caused a loss of 10.1 million bpd of supply in March, the largest disruption in history. Flows through the strait fell to 3.8 million bpd in early April from more than 20 million bpd in February. In a more severe scenario, prolonged disruptions could draw almost 2 billion barrels from global stocks and force demand to fall 5 million bpd year-on-year from the second quarter through the fourth.

Options Repricing Flips to Decade-Low Put/Call Ratio

The shift in options positioning marks a fundamental change in how traders view the conflict. During the Russia-Ukraine war, the put/call ratio peaked at 1.72 as traders hedged against downside risk. Now, with the strait effectively closed, the ratio has collapsed to 0.7 — meaning call buying dominates — as the market prices in sustained supply disruption as the baseline rather than a tail event.

The IEA's demand outlook has deteriorated sharply. The agency projects a 1.5 million bpd drop in demand in the second quarter of 2026, the deepest contraction since the COVID-19 pandemic. Demand destruction is spreading across naphtha, LPG and jet fuel, with the deepest cuts coming from the Middle East and Asia-Pacific.

Supply-Demand Balance Tightens to 410,000 bpd Surplus

The IEA's revised forecasts imply supply will exceed demand by just 410,000 bpd in 2026, down from a 2.46 million bpd surplus projected in March. OPEC on Monday lowered its own second-quarter demand forecast but kept its full-year outlook unchanged.

The base case assumes regular deliveries from the Middle East resume by mid-year, though below pre-conflict levels. The alternative scenario — longer-term disruptions — would draw almost 2 billion barrels from stocks and cut demand by 5 million bpd year-on-year on average from the second quarter through the fourth quarter.

"With the geopolitical situation still in flux and the prospects for a lasting negotiated settlement to the conflict still unclear, our two cases span the range of probable outcomes," the IEA said.

The stakes extend beyond crude. The IEA warned that demand destruction will spread as scarcity and higher prices persist, with the deepest cuts in oil consumption coming from the Middle East and Asia-Pacific for naphtha, LPG and jet fuel. The projected 1.5 million bpd drop in second-quarter demand would mark the deepest contraction since the COVID-19 pandemic, with the full-year impact hinging on whether Hormuz flows resume by mid-year as the base case assumes.

This article is for informational purposes only and does not constitute investment advice.