Oil's Calm Before the Storm? Geopolitical Risk and Inventory Signals Point to a Stable $60–$69 Brent Range

The Strait of Hormuz, a vital artery for 20% of the world's seaborne oil trade, has long been a geopolitical lightning rod. Yet as tensions between Iran and Israel eased following recent ceasefires, the probability of a supply-disrupting closure of the strait has plummeted to 4%, per Goldman Sachs. This dramatic drop in perceived risk, alongside robust inventory builds and OPEC+ spare capacity, has anchored Brent crude in a $60–$69 range. Investors now face a critical question: How to capitalize on this stability while hedging against the low-probability, high-impact event that could send prices to $90? The answer lies in leveraging risk-reward dynamics to profit from oil's "new normal."

Geopolitical Risk Pricing: From 52% to 4%

Goldman Sachs' analysis reveals a stark shift in market sentiment. Prediction markets once priced a 52% chance of Iran closing the strait in 2025, but post-ceasefire options data now reflect a 4% probability of sustained disruption. This divergence underscores traders' skepticism toward extreme scenarios. While Iran's parliament has endorsed a strait-closure plan, the Supreme National Security Council's final say tempers expectations. The bank notes that a 1.75 million barrels/day supply cut—the threshold for triggering a $90 price spike—would require a full-scale conflict, which major powers like the U.S. and China have strong incentives to avoid.

Inventory Dynamics: The Buffer Against Volatility

Seasonal inventory builds are further insulating markets. Goldman forecasts 1.5 million barrels/day of incremental supply from OPEC+, alongside rising U.S. and European stockpiles. This cushion ensures even a short-term strait disruption (halving flows for a month) would only briefly push prices to $110 before settling back to $95 by year-end. The $60–$69 range is now a self-reinforcing equilibrium:
- Demand resilience: Asian industrial growth and winter heating needs anchor the lower bound.
- Supply discipline: OPEC+ has signaled reluctance to flood markets, keeping balances tight but not critical.

The Risk-Reward Trade: Long Oil with a Stop-Loss

The current landscape favors long positions in oil futures or ETFs, with disciplined risk management. Consider these levers:
1. Entry Point: Buy Brent-linked ETFs (e.g., UCO) at $68–$70. UCO's 2x leverage amplifies gains in a rising market while minimizing exposure to prolonged stagnation.
2. Stop-Loss: Set a $72–$75 exit to limit losses if geopolitical fears resurface. This aligns with options traders' 60% probability weighting for the $60–$69 range.
3. Upside Target: A breach of $70 signals fading geopolitical risk, with $80–$85 as the next resistance. Only a strait closure (unlikely at 4% odds) would push prices to $90+—a scenario already priced into extreme out-of-the-money options.

Hedging Against the Tail Risk

For the 4% chance of disruption, pair oil longs with inverse ETFs (e.g., DBO) or natural gas futures. Natural gas (TTF) could spike to $25/MMBtu if oil markets freeze, offering a complementary play.

Conclusion: Stability as Opportunity

The oil market is no longer a high-stakes roulette table. With geopolitical fears priced low and inventories bulging, the $60–$69 range offers asymmetric upside for disciplined investors. Deploy capital in leveraged oil ETFs, anchor stops above $70, and let the market's new calm work in your favor. Even if the Strait of Hormuz stays open, demand fundamentals ensure oil remains a core holding in 2025 portfolios.

Investment Recommendation:
- Buy UCO (2x leveraged Brent ETF) at $68–$70.
- Set stop-loss at $75 to exit if geopolitical risk premiums rebound.
- Target $85–$90, but prioritize capital preservation given low disruption odds.

The strait may be calm today, but the tools to profit from its tides are clear.