Oil “VIX” At 121 — Markets Aren’t Pricing De-Escalation

OVX - pure panic

1. Quick de-escalation: Hormuz flows resume quickly; Brent averages ~$80 in March then mid-$70s, while TTF gas falls from ~€50 to high-€30s as inventories cushion short-term disruptions.

2. ~1-month Hormuz disruption: Markets tighten; Brent rises above $100 in March and TTF gas approaches €80, with faster inventory drawdowns and delayed normalization.

3. Extended disruption / infrastructure damage: Severe supply shock; Brent could reach $150+ by 2Q26 and TTF ~€80, creating a crisis similar to the 2022 European gas shock. (UBS)

One thing is clear: OVX is not pricing the de-escalation scenario, closing at 121.

Source: LSEG Workspace

Kaneva says

JPM's Kaneva outlining her latest logic on oil:

Policy measures may have limited impact on oil prices unless safe passage through the Strait of Hormuz is secured. Escorting every tanker would require many warships and close allied coordination, but the US Navy has limited vessels available due to ongoing operations.

For now, the broader US strategy appears focused on degrading Iran’s asymmetric capabilities threatening shipping, such as coastal anti-ship missiles, naval mines, drones, and IRGC speedboat swarm attacks. The goal is also to destroy factories producing these systems, limiting Iran’s ability to replenish them. Once these threats are sufficiently reduced, naval escorts and government-backed insurance could restore confidence for tankers to transit the Strait.

Source: JPM

VLCC rates exploding

VLCC rates ($/bbl), Ras Tanura to Ningbo (270kt) and Rotterdam (280kt). Full read here.

Source: Clarkson

Soggy euro

The euro is now well below the 200-day moving average for several consecutive sessions. A close below the range could make the downside get dynamic, although betting against the range hasn’t worked, either way, since last summer.

Source: LSEG Workspace

Nervous euro

We are not suggesting euro vols need to "explode" and catch up to oil volatility, but there is definitely strong connection. More on soggy Europe and the oil connection here.

Source: LSEG Workspace

XLE

Back in mid-December, we highlighted the massive squeeze risk building in energy: “XLE continues trading inside the huge multi-year range… when that range eventually breaks, liquidity vacuums tend to form.”

Since then, XLE has surged more than 25%. However, some momentum has faded lately. The ETF is now testing the steep trend line and the 21-day moving average, the first key support levels, so watch closely if XLE closes below them.

Source: LSEG Workspace

Retail XLE flows

Retail have been buying the XLE in size over the past 1.5 months. More on the XLE darling long here.

Source: JPM

Put delta extremes

Investors have added to hedges in index options – MS QDS estimates the short put delta held by customers is at historical extremes.

Source: MS QDS

Short-dated hedging

Of the short put delta held by customers - much of it relatively short-dated. Latest note on protection here.

Source: MS QDS

Silver lower highs

Silver is printing another lower high as momentum continues to fade. Spot is trading just below the 50-day moving average, while the 100-day sits lower around $71. More here.

Source: LSEG Workspace