Even as geopolitical risks escalate and Iran faces mounting pressure, Brent‘s reaction to the failed US-Iran talks has been relatively subdued. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The US intends to block Iranian oil exports.
- The market imbalance will continue to grow.
- Oil prices will rise if negotiations fail to resume.
- Consider buying Brent when the price breaks through $106 and $111.5.
Weekly Fundamental Forecast for Oil
When military force falls short, the next lever is the economy. Iran has taken losses, but high oil prices, with spot levels near $150 a barrel, have kept revenues strong. Exports remain largely unchanged from pre-war levels at around 1.7 to 2 million barrels per day. Once transit fees are included, the total revenue becomes even more substantial. Washington has tried to cut off this revenue by targeting tankers, but the asymmetric impact may have been underestimated.
When the opponent is much stronger, the only option is to apply economic pressure. Countries that can do this usually have three advantages. They dominate the supply of a key product. That product is hard to replace in the short term. And any disruption hurts others more than it hurts them. China, with rare earths, and Iran, with control over the Strait of Hormuz, are clear examples.
Oil Flows Through the Strait of Hormuz
Source: Reuters.
A US blockade on tankers to and from Iranian ports would only tighten oil market conditions. Instead of losing 10 million bpd, the market could face disruptions of up to 12 million bpd. February flows helped cushion supply in March, but that support is unlikely to carry into April. As a result, the risk of a further rally in Brent looks significant.
Onyx Capital questions why Brent did not jump to $150 a barrel after US-Iran talks collapsed. The initial gap and the 8% rally are small relative to the potential move if the conflict escalates. The company argues that traders saw a potential loss of 12 million bpd as too extreme to believe. Yet the risk remains real, and Brent could still soar to record highs in the near term.
However, the situation may unfold in different ways. The conflict could just as easily escalate as de-escalate. Iran has warned that a US blockade of tankers would violate the two-week ceasefire and force a response. Iran could respond by attacking energy infrastructure across the Middle East or disrupting the Bab al-Mandab Strait by the Houthis. In that case, Brent would likely revive its uptrend. If talks resume, Brent is likely to come under pressure as expectations of a quick de-escalation grow.
If no breakthrough emerges in the next one to two weeks, tighter oil market conditions are likely to push prices higher.
Weekly Trading Plan for Brent
In this context, consider holding long trades opened on a pullback at $90.5. If Brent breaks above $106 and $111.5, add new ones.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of UKBRENT in real time mode
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