Crude Oil Rally Gains Momentum as Hormuz Supply Risk Grows

Key Points

• Oil prices are rising due to ongoing tensions in the U.S.-Iran war and restrictions in the Strait of Hormuz.
• Brent crude has reached $108 per barrel, while WTI is rebounding towards $120.
• A potential peace deal could slow the price rally, but supply disruptions may take time to resolve.

Market Overview

Oil prices have continued to climb as uncertainty surrounding the U.S.-Iran conflict persists, particularly with the Strait of Hormuz remaining a critical chokepoint for oil transport. Traders are increasingly focused on actual supply flows rather than political rhetoric, leading to a heightened risk premium in the market.

Brent oil has seen a consistent increase, marking its seventh consecutive day of price rises, while WTI oil has also surged in response to the breakdown of peace negotiations. The lack of progress in talks has raised concerns about potential supply disruptions, especially as Iran's latest proposals do not address its nuclear program until the conflict is resolved.

Supply Chain Disruptions

The Strait of Hormuz is vital for global energy transport, accounting for approximately 20% of the world's oil and gas demand. The ongoing blockade by the U.S. has significantly reduced the flow of oil from Iran, with reports indicating that several Iranian tankers have been forced to turn back due to the blockade. This has led to a decrease in shipping traffic through the Strait, which previously saw 125-140 vessels daily.

Even if a ceasefire is achieved, it may take months for supply chains to normalize due to port congestion and shipping bottlenecks, maintaining a risk premium in oil prices.

Technical Analysis

WTI Oil

The WTI oil price has remained within a range of $80 to $120 since the onset of the conflict. Following a breakout above the downtrend line at $70, prices surged to $120 before correcting to the 50-day SMA at $80. Currently, WTI is rebounding towards the $120 resistance level, indicating strong market uncertainty.

Brent Oil

Brent oil has also shown significant volatility, fluctuating between $90 and $120. The price structure remains bullish following a breakout from a descending broadening wedge pattern at $72. The fear of supply disruptions is likely to push prices higher in the coming months.

Conclusion

Both Brent and WTI crude oil prices are supported by tight physical supply and ongoing geopolitical tensions. The market is currently in a volatile state, with WTI recovering from $80 and Brent holding above $90. While a peace deal could temper the price rally, the resolution of supply issues may take considerable time, leaving the market vulnerable to further price increases in the near term.