As tensions in the Middle East between Iran, Israel and the United States escalate, speculation about a $130 oil barrel resurfaces on the markets. While the recent rise in prices is very real, fuelled by geopolitics, there is nothing in the fundamentals or in the technical analysis to justify such an extreme scenario for the time being. Unless... the Strait of Hormuz is blocked. Here are some explanations.
1) Oil rebounds, but no technical red alert
Since its low point in May, oil prices have surged by over 40%, buoyed by regional tensions and renewed volatility. The market is anticipating a rise in geopolitical risk, but for the time being, this recovery is not being accompanied by any technical red flags.
Indicators such as the COT report (Commitment of Traders), volumes and key technical thresholds on WTI and Brent are not confirming extreme tension at the current stage, as long as US oil remains below resistance at $80 a barrel. Although the 200-day moving average has been breached, and the reintegration of the $65 level has provided the starting point for a bullish impulse, the price of oil is now at a technical crossroads.
The chart below shows a bearish resistance line (red) on WTI, and the same applies to Brent. If these resistances were to be breached, this would be a strong bullish warning signal for the price of a barrel of oil towards $90/95.
2) A market under pressure... but framed by OPEC
Indeed, only a major supply constraint can push oil up to $130 a barrel.
The current geopolitical context comes at the worst possible time for OPEC. The oil cartel, led by Saudi Arabia, had recently decided to increase production after years of restrictions. The objectives were to respond to what was seen as robust demand, win back market share from US producers and punish less disciplined members.
In May, June and July, an increase of 411,000 barrels per day is scheduled. In other words, the market is receiving additional supply, which mechanically limits the risk of a speculative surge, barring a major exogenous shock such as the long-term closure of the Strait of Hormuz.
3) Iran/Israel/USA: the market prices the risk, but doesn't panic. Traders are currently considering three scenarios:
1. Tougher sanctions against Iran, reducing supply by 500,000 to 1 million barrels a day.
2. A targeted attack on Iran's oil infrastructure.
3. A temporary closure of the Strait of Hormuz.
The first two cases can be absorbed by the market, notably thanks to the production capacities of other OPEC+ members or the strategic release of reserves. On the other hand, blocking the Strait of Hormuz would be a “game changer”.
The Strait of Hormuz, between the Persian Gulf and the Gulf of Oman, is the gateway to 20% of the world's oil supply, i.e. some 17 to 18 million barrels a day. It is also a vital route for liquefied natural gas (LNG), particularly from Qatar.
Even a partial shutdown would have an immediate impact on all logistics chains and the energy security of importing countries, and would trigger a brutal price shock. In this case, oil at 130 dollars would no longer be an extreme hypothesis, but a plausible scenario in the very short term.
The situation is, of course, evolving, and investors need to keep an eye out for weak signals: military movements in the Strait, targeted attacks on energy infrastructures, bellicose rhetoric. In the absence of a blockade of Hormuz, the fundamentals (rising OPEC production, slowing Chinese demand, technical stability) militate in favor of a ceiling of around $80/90.
A barrel at $130? Yes, but only if Hormuz closes completely.
DISCLAIMER:
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions.
This content is not intended to manipulate the market or encourage any specific financial behavior.
Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. The views expressed are those of the consultant and are provided for educational purposes only. Any information provided relating to a product or market should not be construed as recommending an investment strategy or transaction. Past performance is not a guarantee of future results.
Swissquote and its employees and representatives shall in no event be held liable for any damages or losses arising directly or indirectly from decisions made on the basis of this content.
The use of any third-party brands or trademarks is for information only and does not imply endorsement by Swissquote, or that the trademark owner has authorised Swissquote to promote its products or services.
Swissquote is the marketing brand for the activities of Swissquote Bank Ltd (Switzerland) regulated by FINMA, Swissquote Capital Markets Limited regulated by CySEC (Cyprus), Swissquote Bank Europe SA (Luxembourg) regulated by the CSSF, Swissquote Ltd (UK) regulated by the FCA, Swissquote Financial Services (Malta) Ltd regulated by the Malta Financial Services Authority, Swissquote MEA Ltd. (UAE) regulated by the Dubai Financial Services Authority, Swissquote Pte Ltd (Singapore) regulated by the Monetary Authority of Singapore, Swissquote Asia Limited (Hong Kong) licensed by the Hong Kong Securities and Futures Commission (SFC) and Swissquote South Africa (Pty) Ltd supervised by the FSCA.
Products and services of Swissquote are only intended for those permitted to receive them under local law.
All investments carry a degree of risk. The risk of loss in trading or holding financial instruments can be substantial. The value of financial instruments, including but not limited to stocks, bonds, cryptocurrencies, and other assets, can fluctuate both upwards and downwards. There is a significant risk of financial loss when buying, selling, holding, staking, or investing in these instruments. SQBE makes no recommendations regarding any specific investment, transaction, or the use of any particular investment strategy.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts suffer capital losses when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Digital Assets are unregulated in most countries and consumer protection rules may not apply. As highly volatile speculative investments, Digital Assets are not suitable for investors without a high-risk tolerance. Make sure you understand each Digital Asset before you trade.
Cryptocurrencies are not considered legal tender in some jurisdictions and are subject to regulatory uncertainties.
The use of Internet-based systems can involve high risks, including, but not limited to, fraud, cyber-attacks, network and communication failures, as well as identity theft and phishing attacks related to crypto-assets.
1) Oil rebounds, but no technical red alert
Since its low point in May, oil prices have surged by over 40%, buoyed by regional tensions and renewed volatility. The market is anticipating a rise in geopolitical risk, but for the time being, this recovery is not being accompanied by any technical red flags.
Indicators such as the COT report (Commitment of Traders), volumes and key technical thresholds on WTI and Brent are not confirming extreme tension at the current stage, as long as US oil remains below resistance at $80 a barrel. Although the 200-day moving average has been breached, and the reintegration of the $65 level has provided the starting point for a bullish impulse, the price of oil is now at a technical crossroads.
The chart below shows a bearish resistance line (red) on WTI, and the same applies to Brent. If these resistances were to be breached, this would be a strong bullish warning signal for the price of a barrel of oil towards $90/95.
2) A market under pressure... but framed by OPEC
Indeed, only a major supply constraint can push oil up to $130 a barrel.
The current geopolitical context comes at the worst possible time for OPEC. The oil cartel, led by Saudi Arabia, had recently decided to increase production after years of restrictions. The objectives were to respond to what was seen as robust demand, win back market share from US producers and punish less disciplined members.
In May, June and July, an increase of 411,000 barrels per day is scheduled. In other words, the market is receiving additional supply, which mechanically limits the risk of a speculative surge, barring a major exogenous shock such as the long-term closure of the Strait of Hormuz.
3) Iran/Israel/USA: the market prices the risk, but doesn't panic. Traders are currently considering three scenarios:
1. Tougher sanctions against Iran, reducing supply by 500,000 to 1 million barrels a day.
2. A targeted attack on Iran's oil infrastructure.
3. A temporary closure of the Strait of Hormuz.
The first two cases can be absorbed by the market, notably thanks to the production capacities of other OPEC+ members or the strategic release of reserves. On the other hand, blocking the Strait of Hormuz would be a “game changer”.
The Strait of Hormuz, between the Persian Gulf and the Gulf of Oman, is the gateway to 20% of the world's oil supply, i.e. some 17 to 18 million barrels a day. It is also a vital route for liquefied natural gas (LNG), particularly from Qatar.
Even a partial shutdown would have an immediate impact on all logistics chains and the energy security of importing countries, and would trigger a brutal price shock. In this case, oil at 130 dollars would no longer be an extreme hypothesis, but a plausible scenario in the very short term.
The situation is, of course, evolving, and investors need to keep an eye out for weak signals: military movements in the Strait, targeted attacks on energy infrastructures, bellicose rhetoric. In the absence of a blockade of Hormuz, the fundamentals (rising OPEC production, slowing Chinese demand, technical stability) militate in favor of a ceiling of around $80/90.
A barrel at $130? Yes, but only if Hormuz closes completely.
DISCLAIMER:
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions.
This content is not intended to manipulate the market or encourage any specific financial behavior.
Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. The views expressed are those of the consultant and are provided for educational purposes only. Any information provided relating to a product or market should not be construed as recommending an investment strategy or transaction. Past performance is not a guarantee of future results.
Swissquote and its employees and representatives shall in no event be held liable for any damages or losses arising directly or indirectly from decisions made on the basis of this content.
The use of any third-party brands or trademarks is for information only and does not imply endorsement by Swissquote, or that the trademark owner has authorised Swissquote to promote its products or services.
Swissquote is the marketing brand for the activities of Swissquote Bank Ltd (Switzerland) regulated by FINMA, Swissquote Capital Markets Limited regulated by CySEC (Cyprus), Swissquote Bank Europe SA (Luxembourg) regulated by the CSSF, Swissquote Ltd (UK) regulated by the FCA, Swissquote Financial Services (Malta) Ltd regulated by the Malta Financial Services Authority, Swissquote MEA Ltd. (UAE) regulated by the Dubai Financial Services Authority, Swissquote Pte Ltd (Singapore) regulated by the Monetary Authority of Singapore, Swissquote Asia Limited (Hong Kong) licensed by the Hong Kong Securities and Futures Commission (SFC) and Swissquote South Africa (Pty) Ltd supervised by the FSCA.
Products and services of Swissquote are only intended for those permitted to receive them under local law.
All investments carry a degree of risk. The risk of loss in trading or holding financial instruments can be substantial. The value of financial instruments, including but not limited to stocks, bonds, cryptocurrencies, and other assets, can fluctuate both upwards and downwards. There is a significant risk of financial loss when buying, selling, holding, staking, or investing in these instruments. SQBE makes no recommendations regarding any specific investment, transaction, or the use of any particular investment strategy.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts suffer capital losses when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Digital Assets are unregulated in most countries and consumer protection rules may not apply. As highly volatile speculative investments, Digital Assets are not suitable for investors without a high-risk tolerance. Make sure you understand each Digital Asset before you trade.
Cryptocurrencies are not considered legal tender in some jurisdictions and are subject to regulatory uncertainties.
The use of Internet-based systems can involve high risks, including, but not limited to, fraud, cyber-attacks, network and communication failures, as well as identity theft and phishing attacks related to crypto-assets.
This content is written by Vincent Ganne for Swissquote.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
This content is written by Vincent Ganne for Swissquote.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.