Oil Price Forecast: Hormuz Crisis Keeps Brent and WTI in Breakout Mode

Oil prices surged again on Thursday due to the supply disruptions in the Middle East. Brent crude oil was near $120 a barrel while the WTI oil was trading above $110 as the market responded to the failure of the negotiations to halt the U.S.-Israeli conflict with Iran. The market is now factoring in the possibility that Gulf supplies will be tight longer, particularly as the Strait of Hormuz is effectively closed to shipping.

Brent and WTI Rally as Hormuz Supply Risk Deepens

Brent crude oil again surged to $119 after strong gains on the previous day. The price has now gained nine days in a row which represents the amount of risk premium that has been added. WTI oil also rose to $110 after 7% gain on the previous day. This price action indicates that investors are not only adjusting to current supply situation but also expecting a protracted period of uncertainty.

The most recent development was U.S. President Donald Trump discussing with oil firms how to minimize the effects of a possible longer blockade of Iranian ports. This further led to concerns that the embargo would be longer than originally anticipated. The Strait of Hormuz remains the core problem because it is vital global shipping route. Based on the blockades on most Gulf shipping by Iran and on Iranian shipping by the U.S, there is little chance of a rapid resumption of supply.

OPEC+ Output Increase May Fail to Ease Oil Supply Fears

OPEC+ may consider modest quota increase of 188,000 barrels per day on Sunday. This might normally ease prices. However, the current gap is much greater than this quota hike. If Gulf exports don’t increase, more paper barrels might not flow fast enough.

The UAE’s exit from OPEC also creates some uncertainty. This could change the impact of OPEC on prices in the long run. But this would not have an impact on fundamentals this year as the war has already impacted production and exports. It could also take months for Gulf oil producers to return to pre-war production levels. This could mean that prices could be supported until the Hormuz and ports are opened.

Oil Technical Analysis: Brent and WTI Breakouts Signal More Upside

From a technical perspective, Brent crude oil has found support at the long-term support of $90 and reached $120 again. The short term price action remains strongly bullish. This bullish price action will likely push toward $130 over the next few sessions.

The emergence of a descending broadening wedge pattern followed by a breakout above the $90 area and a retracement toward $90 indicates sustained bullish momentum in the oil market.

The weekly chart also shows strong resistance in the $125 to $135 that was discussed in March. This band is likely to be reached in the next few days as the price responds to the Middle East crisis.

On the other hand, WTI crude oil also shows constructive price action in April. This was developed after the rebound from $80. The $110 area is likely to break, and the immediate resistance remains $130.

However, based on recent fundamental and technical factors, WTI oil will likely reach $150 in the next few days.

Bottom Line

Crude prices remain well supported as the Hormuz issue, Iranian port closure and Middle East conflict continue to pose supply concerns. The market could remain jittery even if OPEC+’s modest output boost continues while Gulf exports are blocked. The decision for the UAE to leave OPEC also adds longer term doubt but the current move is still largely dependent on supply. Brent oil remains in an uptrend above $90 and is likely to test $125-$135. WTI oil also remains strong, with the potential to move to $130 and to $150 with further supply disruption.

To read more about the technical and fundamental developments, please read here.