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.
