Oil Price Forecast: Strait of Hormuz Tensions Keep WTI and Brent Supported

Oil prices are consolidating in a wide range due to the uncertainty over the peace deal between the US and Iran. On Friday, the market dropped in relief that Iran had declared the commercial traffic across the Strait of Hormuz would not be blocked as part of the ceasefire. That hope faded away on the weekend with the United States seizing an Iranian cargo ship, and Iran threatening retaliation. Consequently, traders scrambled to price in new supply risk. This sends Brent crude to $95.50 and WTI Oil to $89.60 following a sharp selloff on Friday.

The rebound was mainly due to rising fears that the Strait of Hormuz would be closed for longer. Approximately one-fifth of the oil and liquefied gas in the world is transported via this waterway. Therefore, any temporary disruption can shake the entire energy market. Shipping traffic remained very feeble and few crossings were reported during the past 24 hours. That informs the market that the blockade issue is yet to be resolved. When ships are unable to transit freely along such a critical route, the buyers of oil begin to fear late deliveries, tighter supply and an increased risk of transport. All this favors an increase in crude prices.

Nevertheless, the worst-case scenario is not yet being reflected in the market. The supply disruptions in March and April will produce a long term impact on the global economies. The closure of Starit indicates that oil is yet to rise to the levels it was at the beginning of the conflict. Nonetheless, the risk premium is evidently on. Oil will likely remain volatile as the ceasefire will expire later this week and no final decision has been made from the peace talks.

WTI Crude Oil Maintains a Wide $80–$120 Range

The 4-hour chart for WTI crude oil shows a strong consolidation between $80 and $120. However, despite this consolidation, the oil price remains above the war level. A break above the $120 area will indicate further upside toward $150. However, a break below the $80 area will push prices toward $70.

The strong volatility in crude oil prices is also observed on the daily chart. The chart shows that the price correction from $120 has reached the 50-day SMA. However, the overall price structure suggests a wide range of moves in the short term. This move develops after the breakout from the descending trend line in the $70 area.

The blue shaded area in the chart shows the price movements during the US-Iran war, which has kept prices between $80 and $120.

Brent Crude Defends the Key $90 Support Zone

Brent crude oil has also reached the strong support zone at $90, as discussed previously. The low was formed at $87, but the price closed below the $90 area.
The overall structure for Brent crude oil remains strongly bullish despite the strong volatility in oil prices.

This bullish structure is seen in the breakout from the descending broadening wedge pattern at $70 and then the breakout from the $90 area. Therefore, the retracement to $90 may be considered another signal that prices will go much higher.

Bottom Line

Oil prices are still in a volatile yet constructive formation as traders balance between the diplomacy and real supply risk. The Strait of Hormuz is the most influential factor since any weakening of usual shipping continues to tighten the market and push prices higher. WTI continues to range within a broad range of $80-$120. Moreover, Brent is still defending the key zone of $90 against sharp swings. That continues the larger bullish formation. There may be a slight relief in terms of tensions but as long as the blockade threat remains unaddressed, oil prices will mostly remain high and prone to another sharp increase.

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