Crude Oil Price Forecast: Iran Tensions Push Brent Toward $100

Crude oil prices rose on Monday as tensions between Iran and United States increased. Both countries ruled out extending the June agreement. Iran also warned that it could take offensive actions if the diplomacy fails. This increased the risk of wider conflict and additional supply disruptions in the region. WTI oil gained over 3% on Monday to close at $84.96 per barrel. Brent oil gained over 2.5% to close at $92.81.

The main concern for the oil market is disruptions at the Strait of Hormuz. As of now, there is no traffic going through the Strait. As per the latest data, only three boats crossed the Strait of Hormuz on Sunday as compared with 130 before the war. This slowdown in shipping can cause oil deliveries to be delayed. This can also increase the freight charges and insurance costs. As world oil production levels hold steady, these risks may help to maintain oil prices.

The potential buying from China could put further upward pressure on oil. China has recently cut its crude imports by 4 to 5 million bpd. This drop helped to prevent steeper oil price increase. But the Chinese refiners may be tempted to purchase more at high prices. If the chokepoint at Hormuz tightens and Chinese imports return, then Brent could be headed back to $100.

WTI Crude Oil Price Forecast: Break Above $87 Targets $93.80

WTI crude oil has been forming constructive price action above the $70 area as seen in the 4-hour chart below. The price formed rounding cup pattern in June and July. The price is now forming another rounding cup pattern in August. A break above $87 will likely confirm the cup formation and push the price toward $93.80. A break above $97 will indicate a stronger recovery toward the $105 area. This constructive price action indicates that prices may remain elevated in the next few months if $105 is broken.

This constructive price action is also observed on the weekly chart which shows a strong rebound from the $66 support. The support at $66 was also a retest of the breakout from the descending trendline that stretches from the September 2023 highs. The price has now recovered above $80.50 and is pushing toward higher levels. This indicates constructive price action as the RSI also remains above the midline.

Brent Crude Oil Price Forecast: $100 Breakout Opens Path to $125

Brent crude oil shows stronger recovery above $92. The price remains above the 50- and 200-day SMAs and continues to rally to higher levels. A break above $100 will likely push Brent crude oil toward the $125 area. The RSI also remains above the midline and continues to accelerate which indicates further upside potential in the Brent crude oil market.

The weekly chart for Brent crude oil also shows strong constructive price action above the $80 area. The first weekly candle of August was strongly bullish due to the formation of sharp shadows on the weekly candle. The second and third weeks of August are now constructive and point to rally to the $100 area. A break above $100 may push prices toward the $125 region.

Bottom Line

Oil prices continue to rally on Monday as the tensions between the US and Iran escalate. The traffic through the Strait of Hormuz is the main concern as it causes the supply delays and higher shipping costs. A recovery in Chinese crude imports could add more pressure. These factors may keep oil prices elevated in near term.

The technical outlook also shows constructive price action in the oil market. WTI oil must break above $87 to target $93.80 and then $105. Brent oil could extend the recovery to $100 while the break above this level may open the way to $125. But the easing of tensions or recovery in shipping activity could slow the rally.

Read more: WTI and Brent Face Weak Demand Concerns