Crude oil options signal rising Middle East supply risks

WTI crude oil options call skew has risen to +7.2%, the highest level since September 10, reflecting increased market demand for hedging against upside risk in oil prices amid escalating tensions in the Middle East. Attacks by the Houthi group on Saudi oil infrastructure and regional shipping routes have further heightened concerns about disruptions to crude oil supply. Meanwhile, the 1-to-2 month spread of WTI crude oil has narrowed from $5.40/barrel to $2.30/barrel, indicating a weakening of the recent spot premium trend. Although the tightness in the physical crude market has eased somewhat recently, options traders are still pricing in greater upside risks for oil prices.