We’ve seen a sharp move higher in $OVX, the Crude Oil Volatility Index, which tracks market expectations for oil price volatility over the next 30 days.
It’s pushing 69, a 3-year high.
But this surge isn’t about hedging against a crash, it's coming from call-side implied volatility (IV).
wHY IS OVX SPIKING NOW
This move in OVX is more than just fear. It’s about the market leaning increasingly bullish on crude.
The Middle East exports about a third of global supply, and over 20% of global crude flows through the region.
With escalating violence between Israel and Iran, investors are not merely hedging downside — they're aggressively positioning long for supply shocks.
We’re seeing traders pile into call options, not puts. That shift has produced a rare inversion in skew, where upside calls are now more expensive than downside puts.
This shift is especially pronounced in short-dated contracts. The 1-month 25-delta skew on USO has dropped to its lowest level in 16 years — breaking past the levels seen during Russia’s invasions of Ukraine.
The 25-delta skew is calculated as:
When the skew drops below zero, it means calls carry higher implied volatility than puts — a rarity in options markets.
THE MACRO SETUP
What's behind the bullish sentiment is a tightening in oil supply.
Hedgeye Energy Analyst Fernando Valle noted a massive change in U.S. inventories this morning:
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“Commercial crude inventories fell by 11.47 million barrels, adding significant tailwinds to WTI and Brent prices on the back of escalating tensions between Israel-Iran.” Read the full note here. |
But this move didn’t come out of nowhere.
Over a week ago on Tuesday, June 10, Hedgeye flagged the early stages of a #Quad2 reflationary setup with crude oil breaking out across multiple durations:
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“This morning is Day 3 of Oil confirming its Bullish TREND Signal,” McCullough said on The Macro Show. |
Oil thrives in a #Quad 2 environment — where accelerating growth and inflation drive outperformance in commodities.
Backed by both the signal and the quad setup, Valle upgraded key energy names—FANG, PR, MTDR— before the rally took off.
Hedgeye didn’t need to chase—the signal and quad aligned and #HedgeyeNation got paid.
