West Texas Intermediate crude oil futures fell more than 5% on Monday, dropping to $67.42 per barrel as the U.S. called for an international coalition to secure the Strait of Hormuz following a series of attacks on vital energy hubs in the region. The move wiped out last week's gains and marked the largest single-day decline since November.

Market Context

Broad risk-off sentiment dominated commodity markets as traders weighed the implications of escalated tensions in the Middle East. The U.S. Pentagon confirmed strikes on three separate occasions targeting facilities near key shipping lanes, prompting concerns about supply disruption. Brent crude followed suit, falling 4.8% to $71.18 per barrel. The U.S. Dollar Index rose 0.3%, adding pressure to dollar-denominated commodities.

Analysis

From a derivatives standpoint, the move sparked a sharp spike in implied volatility across energy options markets. The CboE Oil Index Volatility (OVX) jumped 23% to 38.2, its highest level since September. Put skew surged relative to calls, with the 25-delta risk reversal sliding to -0.15 as market participants rushed to protect against further downside. Unusual activity was noted in the March $65 put expiring in three days, with volume exceeding 45,000 contracts—more than triple its open interest. Institutional desks reported significant gamma exposure on the 65-strike, suggesting market makers were forced to sell futures to hedge short put positions as spot prices approached support levels. Retail flow was notably one-sided, with 72% of total volume in WTI options trading puts versus calls.

Key Numbers

- WTI crude fell 5.2% to $67.42 per barrel, largest single-day drop since November

- Brent crude declined 4.8% to $71.18 per barrel

- OVX volatility index rose 23% to 38.2, highest since September

- March $65 put volume exceeded 45,000 contracts, triple open interest

- Put/call volume ratio in WTI options reached 2.6:1

- U.S. Dollar Index rose 0.3% to 104.8

What to Watch

Traders should monitor the $65 support level as key gamma pinning occurs at that strike through Friday expiration. Any further escalation in Middle East tensions could drive OVX toward 45-50. The upcoming EIA inventory report on Wednesday will provide near-term direction, with analysts expecting a 1.2 million barrel draw. OPEC+ meeting scheduled for April 3 remains a critical catalyst, as supply adjustments could amplify or mitigate current geopolitical risk premium. Implied volatility term structure suggests elevated uncertainty through month-end, with March IV at 38 versus June IV at 29.