The longer the blockade of the Strait of Hormuz persists, the more likely Brent is to extend its rally. Exports from Persian Gulf countries are declining, while demand for petroleum products continues to rise. The increase in US oil production has done little to ease the pressure on the market. Let’s examine these factors and develop a trading plan.
The article covers the following subjects:
Major Takeaways
- Demand for gasoline and diesel is rising.
- Exports from the Persian Gulf are declining.
- Other countries are being drawn into the US-Iran conflict.
- Long positions can be considered as long as Brent remains above $90.
Weekly Fundamental Forecast for Oil
Rising demand for petroleum products, escalating tensions between the UAE and Iran, and growing market expectations of a prolonged closure of the Strait of Hormuz are creating a bullish environment for crude oil. Brent has risen for five consecutive days, reaching a four-day high.
Although Brent crude is trading around 25% above its level at the start of the Middle East conflict, petroleum product prices tell a different story. European diesel prices have surged 70% since late February, while US gasoline prices have risen 60% over the same period. Against this backdrop, news of a second consecutive weekly increase in US inventories failed to temper Brent and WTI bulls. At the same time, refinery output reached its highest level since 2019, while distillate inventories fell to a monthly low.
US Oil and Petroleum Product Stocks
Source: Wall Street Journal.
Oil refining in the Persian Gulf countries has fallen by 20% from the 9.6 million bpd recorded before the armed conflict in the Middle East. At the same time, oil-producing nations have managed to export more crude than expected despite the closure of the Strait of Hormuz. According to Kpler estimates, exports averaged 9 million bpd in August, down from 12 million bpd in July and well below the pre-war level of 18 million bpd. Alternative routes are being used, including pipelines and shuttle vessels that transport crude to tankers. However, export volumes continue to decline, which is an increasingly worrying signal for the global oil market.
Crude Exports from Gulf States
Source: Wall Street Journal.
The rise in US oil production has also contributed to Brent’s retreat from the conflict-driven peak of $118 per barrel. US output is approaching 14 million bpd, a record high. Meanwhile, the number of active drilling rigs has reached its highest level of the year, while the number of crews putting them into operation has climbed to a 16-year high.
The oil market faces significant headwinds. However, the widening geographic scope of the conflict, the US threat of unprecedented economic sanctions against Iran, and declining traffic through the Strait of Hormuz and exports from the Gulf countries point to the potential for a slow but steady Brent rally.
The risk of further escalation has not disappeared. While the US remains silent in response to Iran’s provocations, Saudi Arabia is threatening retaliatory action, and Israel is striking Hezbollah targets in Lebanon. The Middle East remains engulfed in conflict, providing a persistent tailwind for oil prices.
Weekly Trading Plan for Brent
Against this backdrop, long positions opened near the lower end of the $80–90 range and increased following a breakout above its upper boundary can be maintained. As long as Brent holds above the $90 support level, pullbacks should be viewed as opportunities to add to long positions.
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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