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Photographer: Jorge Guerrero\/AFP\/Getty Images<\/p>\n
(Bloomberg) — The oil market is in the middle of its strongest start to a year since 2022 as supply shocks and sanctions confound expectations of a glut. Now traders are racing to cover themselves against the prospect of the US bombing Iran again.<\/p>\n
Most Read from Bloomberg<\/p>\n
A surge in activity across futures and options markets is already pulling up crude prices \u2014 Brent futures touched a seven-month high of more than $72 a barrel on Friday, and some analysts see a risk premium of as much as $10.<\/p>\n
The rally \u2014 Brent is up about 18% since the end of last year \u2014 represents a marked shift from just weeks ago, when traders were focused on forecasts for a record surplus, especially around now.<\/p>\n
Instead, there\u2019s been unexpected strength thanks to supply disruptions in the US and Kazakhstan \u2014 as well as a shunning of sanctioned crude. That\u2019s been amplified by geopolitical risk \u2014 starting in Venezuela and extending to Iran \u2014 where President Donald Trump could order fresh strikes in a region home to about a quarter of the world\u2019s seaborne oil trade.<\/p>\n
\u201cYou have a potential war, and that\u2019s the overriding factor, but it\u2019s in addition to a much tighter market than people anticipated,\u201d said Gary Ross, a veteran oil consultant turned hedge fund manager at Black Gold Investors LLC. \u201cI would fasten my seatbelt and wouldn\u2019t want to be short in this market.\u201d<\/p>\n
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Trump said in response to reporters\u2019 questions on Friday that he\u2019s considering a limited strike on Iran after amassing the biggest US force since 2003. Axios reported earlier in the week that a US attack on Iran could come sooner than expected and look more like a full-fledged war.<\/p>\n
Futures Surge<\/p>\n
The number of Brent oil futures held surged to an all-time high this year, while last month saw record trading in options to protect against a further rally. Volatility has surged to the highest since the US last bombed Iran in June, and traders have \u2014 for the longest period in years \u2014 been charging premiums to protect against a surge.<\/p>\n
\u201cIt does feel that the probability of limited strikes and limited retaliatory strikes from Iran seems less likely this time around,\u201d said Jorge Leon, head of geopolitical analysis at consultant Rystad Energy AS. \u201cIt worked last year, but right now I have the feeling it\u2019s a nuclear deal, or a wider escalation, not something in the middle.\u201d<\/p>\n
Story Continues <\/p>\n
That prices haven\u2019t pushed higher is a sign of how much global output has expanded.<\/p>\n
US Energy Secretary Chris Wright even said this week that American energy dominance has made the country\u2019s foreign policy less beholden to supply shocks.<\/p>\n
The Organization of the Petroleum Exporting Countries and its allies steadily lifted output last year. Likewise, volumes from outside the group also hit a record, leaving global production at 108 million barrels a day at the end of 2025, according to IEA estimates. That\u2019s almost 3 million barrels a day higher than consumption over the same period, its figures show.<\/p>\n
Still, the first few weeks of January offered an example of how unexpected output curbs can quickly narrow that gap.<\/p>\n
Planned exports of Kazakhstan\u2019s CPC Blend crude fell to the lowest level in about a decade thanks to a combination of drone attacks, maintenance, damage to a production facility and bad weather. At the same time, a deep freeze in the US contributed to two of the four largest declines in American oil inventories this century. Crude stockpiles alone fell by 9 million barrels last week.<\/p>\n
While output in both countries has since picked up again, the disruption helped to erode western stockpiles at a time when they\u2019d been expected to grow quickly.<\/p>\n
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Physical oil traders are watching the situation in Iran closely, too.<\/p>\n
Some refiners in Asia, the top consuming region, have begun asking about the availability of cargoes from regions outside of the Persian Gulf in order to cover themselves against the risk of disruption.<\/p>\n
Earnings for oil supertankers, whose supply was already constrained, have also soared partly in anticipation of a US move. The market\u2019s biggest ships are earning more than $150,000 a day, the most since the pandemic when many of them were deployed to store unwanted barrels.<\/p>\n
Rates for the ships have been bolstered by tensions in recent days, after Iran claimed earlier this week it briefly closed part of the narrow Strait of Hormuz chokepoint, through which a fifth of the world\u2019s barrels flow.<\/p>\n
\u201cRight now, the focus is overwhelmingly on Iran and what happens with the Strait of Hormuz,\u201d said Rob Thummel, a portfolio manager at Tortoise Capital Advisors. \u201cThat is the billion dollar question.\u201d<\/p>\n
–With assistance from Devika Krishna Kumar.<\/p>\n
Most Read from Bloomberg Businessweek<\/p>\n
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