Oil News: WTI Crude Oil Tests $98.11 Pivot as Strait Risk Drives Volatility

Crude Oil Faces Another Week of High Tension as Strait of Hormuz Remains the Wildcard

Brent and West Texas Intermediate crude oil are set for another week of high tension and fast price swings as traders react to the war involving the U.S. and Iran. Both markets have been eyeing the $100 level after attacks and retaliation in the Middle East raised fears about disruptions to global oil supply. In my opinion, for retail traders, the biggest factor is the Strait of Hormuz, one of the most important oil shipping routes in the world.

20% of World’s Oil Supply Hangs in the Balance

About 20% of the world’s oil supply moves through this waterway and as you can see from the charts that any news of a shutdown in the region can have a major impact on prices. Price action could come down to one thing this week — oil will move swiftly through the Strait, or it will be blocked, tightening global supply and pushing oil prices higher. Changing fundamentals are also a new source of volatility with the price action being driven entirely by military and geopolitical headlines rather than just normal supply and demand data.

Strait of Hormuz Is the Primary Focus Again This Week

Whether the Strait of Hormuz stays open will be the primary focus of traders again this week. Oil prices could rise well above the psychological $100 level if Iran attempts to block the waterway or attacks continue around the shipping lanes. Prices will continue to rise as long as traders perceive a supply shortage in the future. Traders will definitely be watching the headlines for anything related to shipping security in the Persian Gulf. They really have no choice because the market is responding quickly to any news.

Trump Looking for a Coalition to Protect the Strait

Another factor that could influence oil prices this week will be President Trump’s request for help securing the Strait by its allies. Trump’s looking for a coalition of countries to help protect ships moving through the Strait. If he succeeds then it could calm the markets and drag prices lower from multi-month highs. Otherwise, tensions could rise or more attacks could occur.

China in Focus as Iranian Forces Allow Chinese Vessels Through

China could be the focus this week also. It gets most of its crude oil from the Middle East so trying to sail through the Strait could be dangerous, while bringing additional support to crude oil. However, there are reports that Iran’s military is allowing Chinese vessels to pass through the Strait.

Low 90s or $123. It All Depends on the Headlines

This week, traders should expect very volatile price action. If the war cools and shipping remains open then oil could fall back into the low 90’s, or upper $80’s. However, if attacks continue or the Strait becomes restricted, prices could head toward $110 or $123 area.

Technically, $98.11 is the pivot controlling the direction of the market this week.

Bottom line, the short-term is bullish but one headline can flip it in either direction.

More Information in our Economic Calendar.