After a weaker start, crude oil prices bounced back during Monday’s London session, with Brent turning positive by mid-day. Oil prices climbed roughly 3% yesterday as markets further unwound earlier optimism surrounding a swift resolution to tensions in the Strait of Hormuz. With negotiations still stalled and the key shipping route effectively closed, traders are increasingly being forced to increase the geopolitical risk premium into the market. For now, little else appears to matter. Although volatility has been somewhat subdued given the circumstance, oil remains the dominant macro driver, dictating sentiment across European equities, global bonds and currencies alike — particularly in economies heavily dependent on energy imports. Against that backdrop, the balance of risks in the crude oil outlook continues to point higher.
Will China’s XI help end the stalemate?
The US-Iran stand-off has now dragged on for more than two months and, despite the fragile ceasefire agreed in early April, there remains scant evidence that a durable settlement is close. Let’s see if China’s Xi comes up with a plan to end the war during Trump’s visit of China. But judging by comments from Trump earlier this week, investors remain cautious the US president described the truce as being “on life support”, citing continued disagreements over Tehran’s core demands.
As long as the Strait of Hormuz remains disrupted, the market will remain acutely sensitive to any further escalation. Physical supply concerns are growing, and that is feeding directly into price action. The longer the impasse drags on, the greater the risk that crude prices grind higher simply through attritional pressure.
How is oil impacting other markets?
The knock-on effects are already becoming visible elsewhere. European equities have softened again in recent days, global bond markets remain uneasy, and the euro continues to struggle against a firmer dollar backdrop. Higher energy prices are effectively acting as a tax on growth expectations, particularly across import-reliant economies.
At this stage, the central question for markets is how long both sides are prepared to tolerate elevated oil prices before political pressure forces compromise. Tehran appears willing to absorb considerable economic pain in pursuit of longer-term guarantees, while Washington continues to reject several of Iran’s key conditions outright. For now, the stalemate persists — and the market is losing confidence that a breakthrough is imminent.
Crude oil outlook: WTI technical analysis and levels to watch
From a technical analysis point of view, WTI continues to carve out what increasingly resembles a medium-term base. Spot WTI has now pushed back towards the psychologically important $100 per barrel region, with momentum remaining firmly constructive in the near term. WTI futures have already broken through that level by a good $2 or so.
On WTI, the $97-$98 area is particularly important for the direction of oil prices. Previous resistance in that region has now been cleared, and this area has now acted as support following the earlier retracement. As long as prices remain above that band, buyers are likely to retain control of the broader trend.
Below there, the next key support sits around $95, followed by the recent swing low near $93.60. A move beneath that level would weaken the immediate bullish structure and would probably require a meaningful de-escalation in the US-Iran situation to materialise.
On the topside, resistance around $100 was already yesterday, and another test or two could lead to a potential breakout. A sustained break above triple digits would likely reinforce bullish momentum and could open the door for a retest of the recent highs seen earlier this year.
Should that occur, the wider financial markets may begin to feel more pronounced strain, particularly risk-sensitive assets already struggling with slowing global growth expectations.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
