• WTI call skew climbs to +7.2%, highest since September 10, signaling heightened demand for upside protection.
  • Houthi attacks on Saudi oil infrastructure and shipping lanes renew supply disruption fears.
  • The 1-2 month WTI spread narrows to $2.30/barrel from $5.40, indicating weaker near-term backwardation.

Oil traders are paying up for protection against a sudden supply shock, even as the physical market shows signs of easing. The call skew on West Texas Intermediate crude options—a measure of how much more expensive bullish bets are compared to bearish ones—has risen to +7.2%, the highest level since September 10, according to market data. That surge in demand for upside insurance comes as Houthi forces claimed weekend attacks on Saudi Arabia’s East-West pipeline pumping stations, an Aramco (2222.SR) facility in Yanbu, the Rabigh refinery and Riyadh airport.

Rising Geopolitical Premium

The attacks, while not yet confirmed to have caused sustained production losses, have heightened concerns over supply disruptions from the region. “The market is pricing in a higher probability of a tail-risk event,” said one options trader, who asked not to be identified. “Even if the physical barrels are still flowing, the insurance cost has jumped.”

The geopolitical premium is also visible in the futures curve. The spread between the first- and second-month WTI contracts narrowed to $2.30 per barrel from $5.40, a sign that near-term backwardation—where spot prices trade above later-dated ones—has weakened. That suggests the market sees less immediate scarcity, even as it pays more to hedge against a low-frequency, high-impact event.

Physical Market Loosening

Indeed, global oil supply has recovered substantially. The International Energy Agency estimates that Gulf crude exports rose by 4.4 million barrels per day in September to 13.9 million, more than 75% of pre-war levels. Global observed inventories, however, remain 509 million barrels below end-February levels, leaving little cushion for another disruption.

“Tightness is easing, but the market is not comfortably supplied,” said Priyanka Sachdeva, an analyst at Phillip Nova, in a note to clients. She characterized Monday’s early price pullback as “positioning and risk management rather than a meaningful improvement in underlying supply conditions.”

Oil prices have been volatile. Last week, Brent gained 6% and WTI rose 2.3%. On Monday, both benchmarks initially dropped more than $2 a barrel before recovering. As of 12:05 p.m. ET, WTI was trading at $102.83 and Brent at $117.08, according to CNBC.

Diplomatic Efforts

Diplomatic efforts are providing a counterweight to the bullish momentum. Saudi, Pakistani and Turkish officials held talks with Iranian leaders in Tehran aimed at regional security and reviving negotiations, according to people familiar with the matter. But continued attacks limit confidence in de-escalation.

The IEA has warned that high diesel prices are already squeezing household purchasing power and raising costs for freight, agriculture and manufacturing. The agency forecasts global oil demand falling by 2.6 million barrels per day in 2026 due to restricted availability, expensive fuel and a deteriorating economic outlook.

Implications for Energy Assets

The options market activity has direct implications for energy-linked assets. The United States Oil Fund (USO) (USO), which tracks WTI futures, is most directly exposed to the shift in skew and curve dynamics. Weaker backwardation can reduce the fund’s roll yield, all else equal. Energy equities, such as those held in the Energy Select Sector SPDR Fund (XLE) (XLE), are exposed to corporate earnings and valuations rather than simply the oil price. ExxonMobil (XOM) (XOM) and Occidental Petroleum (OXY) (OXY) are among the largest holdings in XLE, but their shares may not move one-for-one with crude.

AEGIS, a derivatives analytics firm, notes that positive call skew typically reflects higher implied volatility for calls than puts, often driven by geopolitical anxiety. The +7.2% reading, as supplied, is consistent with that pattern, though the exact methodology and contract expiry were not specified.

What to Watch

Traders will be closely monitoring verified outage volumes, Gulf export flows, and whether the WTI calendar spread and call skew remain elevated together. Those measures help distinguish an expensive geopolitical insurance premium from a renewed physical shortage. For now, the options market is sending a clear message: the risk of a supply shock is being taken seriously, even if the barrels are still moving.

Correction: An earlier version of this article misstated the direction of the WTI spread. It narrowed to $2.30 from $5.40, indicating weaker backwardation.