Oil Price Forecast: Strait of Hormuz Flows Pressure WTI and Brent

Oil prices dropped on Tuesday as traders focused on possible US-Iran talks in Doha. The market views these talks as opportunity to lower the war premium in crude prices. Brent and WTI both dropped as the investors now look to the hopes of de-escalation. But the downside is still limited as the situation remains fragile.

The main issue is the Strait of Hormuz. The indication of easier flow from the Strait of Hormuz will exert negative pressure on oil prices, as it will ease concerns about supply. Iran and Oman are still negotiating on new transit routes. This can help rebuild confidence if ships can navigate safely. But Iran also warned of blocking ships from the unapproved paths which maintains the risk premium in the oil market.

The uncertainty surrounding the US-Iran talks keeps traders cautious. Iran’s Foreign Ministry has said there will be no meeting for negotiation in the coming days, but President Trump has indicated that the meeting will take place in Doha. These mixed messages cause some market turmoil. If the negotiations continue, oil prices could drop further, while a failure of talks could quickly bring oil prices back up.

But the physical flow of oil and LNG is important at this point rather than the headlines. In the Middle East, producers continue to load cargoes despite the latest attacks on ships and the recent resurgence in strikes. If the recovery rate persists, then the Gulf flows could reach pre-war levels soon. That is bearish for oil as the increased supply removes the shortage issues. But prices could continue to fluctuate until there is clarity that Hormuz traffic has returned to normal.

WTI Oil Technical Analysis: $66 Support in Focus Below $80

WTI crude oil remains under pressure as the price consolidates below $75 and looks to drop further towards the $66 area. This is the strong long-term support in the WTI market. There is still no sign of a rebound as prices remain under pressure. A break below $66 will likely push prices further downside towards the $60 area. However, the RSI has entered extremely oversold levels and is signaling a strong rebound.

A recovery above $80 is required to ease the bearish pressure. As long as prices remain below $80, any rebound will likely be capped. The importance of $80 is evident on the 4-hour chart, which shows that the breakout from $80 occurred after strong 4-month consolidation between $80 and $120.

As long as the WTI oil remains below $80, the price may likely consolidate towards lower levels within the bearish trend.

Brent Oil Technical Analysis: $72 Support Holds Key for Next Move

The daily chart for Brent crude oil also shows strong support around the $72 to $74 region. A break below $72 will likely push Brent oil towards $67.50. On the other hand, a recovery above $81 will likely push prices towards $83.

The break below $81 in Brent crude oil has kept the market under pressure. However, the RSI has already reached oversold levels which indicates that a rebound could develop anytime in Brent oil.

The weekly chart also shows strong bearish pressure as prices fall. The target for Brent oil remains the $68 area. A break below $68 will add further bearish pressure in the Brent crude oil market.

Bottom Line

The oil price remains under pressure as optimism over U.S.-Iran talks reduces the war premium, while the uncertainty around the Strait of Hormuz keeps traders cautious. The recovery in Gulf flows is bearish for crude oil as it reduces the supply fears. The crude oil market requires clear signs of stable shipping routes. The oil market remains bearish as long as the WTI stays below the $80 and Brent stays below $81. The support levels for WTI and Brent are $66 and $68, respectively. But the RSI has hit oversold levels in both markets, which means that a brief near-term rally could form before the markets make their next big move.

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