WTI at $111, but Options Had Stopped Paying Up

WTI crude settled at $111.54 on April 2, six weeks into a war that had closed the Strait of Hormuz. The market was pricing in catastrophe. Parts of it had already stopped.

Around April 10, the crude oil call skew, the premium traders were paying for oil to spike higher, collapsed. Capital Market Risk Advisors (CMRA), a market risk advisory firm, dated the shift in an April 24 note. Two weeks prior, the implied volatility surface had shown "a much higher risk of a further spike"; by early April, only "a small call skew" remained.

CMRA named what the full surface encoded: "a concentrated front-end supply shock," expected to resolve "over the next three to six months."

The Baltic Exchange's MEG-China VLCC index peaked at $423,736 per day on March 2, a 94% single-session jump after U.S. and Israeli airstrikes on Iran. By the week ending April 6, AXS Marine described "a steady-to-softer tone" on the eastbound leg, with excess vessels accumulating outside the strait.

By early May, the Baltic West Africa-China index sat at $99,407 per day, down 76% from the March peak and holding that level for three weeks.

On May 6, Trump paused Operation Project Freedom, his two-day-old naval escort mission in the strait, citing "great progress." Brent fell 8% to $101.27; WTI dropped 7% to $95.08.

A 26-day spread between what the options surface priced and what the White House stated implies the May 6 announcement was confirmation rather than news. The resolution path had been priced by April 10; oil corrected on the date it became official.

WTI settled at $102.18 on May 12, after Trump rejected Iran's counteroffer and called the ceasefire "unbelievably weak." If the June contract clears back through $111.54 before a formal agreement is signed, the April call skew mispriced the ceiling.