Oil News: Iran-Israel Conflict Keeps Risk Premiums Elevated Despite Demand Downgrade

Crude Oil Rebounds as Traders Eye Geopolitical Tensions and Fed Outlook

Light crude futures traded higher Tuesday, rebounding from Monday’s sharp decline as geopolitical risks and key technical levels shaped market sentiment. The rally found immediate resistance near last week’s high at $76.10, with stronger barriers ahead at $76.57, $78.95, and $82.91.

On the downside, the long-term pivot at $67.44 and the 200-day and 50-day moving averages at $64.95 and $60.70, respectively, offer structural support. With prices currently above these major indicators, the technical bias remains bullish—though the market still seeks a decisive catalyst to breach the longer-term resistance band.

At 11:02 GMT, Light Crude Oil Futures are trading $71.54, up $1.29 or +1.84%.

OPEC Producer Iran and the Strait of Hormuz Keep Risk Premiums Intact

The Iran-Israel conflict remains a critical factor underpinning oil prices. Iran, OPEC’s third-largest producer, faces scrutiny over whether escalating tensions could threaten crude exports. While there’s no direct evidence of disrupted flows, traders remain cautious given the strategic significance of the Strait of Hormuz, through which around 19 million barrels per day of oil and refined products pass.

Market volatility spiked following reports of electronic warfare disrupting vessel navigation systems and a ship collision near the Strait. However, analysts, including Saxo Bank’s Ole Hansen, believe the likelihood of a full closure is low, citing Iran’s reliance on oil revenue and U.S. pressure to keep prices—and inflation—in check.

IEA Revises Oil Demand Down, Raises Supply Forecast

Fundamentals suggest a softer outlook for physical balances. The International Energy Agency’s (EIA) latest monthly report lowered its global oil demand forecast by 20,000 barrels per day while lifting its supply estimate by 200,000 bpd to 1.8 million bpd. This reinforces expectations that inventories may build unless stronger demand emerges.

Federal Reserve Decision Looms Over Broader Market Sentiment

Traders are also closely watching the U.S. Federal Open Market Committee (FOMC) meeting for signals on future rate moves. Any hint of tightening could pressure oil by strengthening the dollar and dampening growth prospects, especially if paired with weaker demand signals from the IEA.

Market Forecast: Bullish Bias, but Waiting for a Breakout Catalyst

Despite ample supply and tempered demand projections, the geopolitical risk premium—especially tied to Iran and the Strait of Hormuz—continues to provide support. The technical setup favors bulls, with prices trading above key moving averages and near resistance levels.

However, without a fresh supply disruption or a clear central bank signal, crude remains in a consolidation zone. Short term, the market retains a bullish bias, but a confirmed breakout above $76.57 is needed to unlock the next upside leg.

More Information in our Economic Calendar.