Brent oil: Hormuz Strait blockade keeps crude oil forecast bullish

Crude oil prices were edging higher again in the afternoon trade in London after momentarily turning lower earlier today. As we have seen once again, oil prices continue to find support on the dips as traders weigh ongoing tensions between the US and Iran. Fresh headlines hinting that Tehran may be open to discussions around the Strait of Hormuz did offer a flicker of optimism, causing indices a short-lived bounce. As I have repeatedly said, though, let’s not get carried away until there is a meaningful breakthrough. After last week’s strong rally, the balance of risks leans to the upside for the crude oil forecast.

 

What’s driving the bullish crude oil forecast?

 

It is obvious, but sometimes the obvious must be stated. The blockade in the Strait of Hormuz is the short and correct answer. Over the weekend, Donald Trump scrapped plans to send senior envoys to Pakistan for indirect talks with Iran. That followed Iran’s Foreign Minister leaving Islamabad without agreeing to meet US officials. Talk could well resume again this week, but they need not be face to face, which is a waste of time according to the U.S. president.

 

The situation remains as clear as mud. Iran appears unwilling to engage while the naval blockade persists, while Washington is equally reluctant to commit negotiators until Iran agrees to Trump’s red line of no nuclear enrichment. Trump’s tone has been a bit softer on Iran, so there may be movement on some of his red lines, but whether Tehran will agree to lower its demands remains to be seen. That leaves the oil market stuck in a limbo. For oil traders, it’s not the rhetoric that matters any more, but the actual physical flow of crude oil through the Strait of Hormuz, and right now, that flow remains constrained.

 

In this environment, anyone bearish on the crude oil forecast must believe that the situation will be resolved very quickly and that the market will then recoup the lost supplies equally quick. In the likely event that this doesn’t happen, prices will keep grinding higher.

 

Indeed, should tensions escalate further, there’s clearly scope for a sharper spike. For now, though, as long as access remains restricted, oil prices are likely to only gradually rise more and more as each day passes.

 

As such, the path of least resistance remains to the upside, with Brent edging closer to the $110 mark.

 

While additional supply from producers like the US and Russia may offer some relief, the global economy remains heavily reliant on Gulf exports. The longer disruptions persist, the more imbalanced the market becomes. Demand may soften slightly at the margins, but it’s unlikely to offset the supply constraints entirely.

 

Put simply, a meaningful pullback would likely require a full reopening of the Strait and a return to normal shipping flows. Until then, upside risks remain firmly in play.

 

Markets pricing in long-lasting supply disruptions

 

The shutdown of the Strait of Hormuz has sent the crude market into sharp backwardation, with the real squeeze felt right at the front where immediate supply of oil and refined products is drying up. That makes sense because traders are increasingly worried about near-term shortages, particularly in diesel and jet fuel, as stockpiles tighten and fresh supply is hard to come by.

 

At the same time, there’s a growing acceptance that even if a peace deal is struck, things won’t snap back quickly. With production outages, logistical snags, and shipping networks all disrupted, any recovery is likely to take months rather than weeks. That’s now feeding through the whole Brent oil forward curve, not just the near term, with longer-dated prices rising as the market starts to price in a more persistent supply shock. On a side note, this suggests inflation risks are real and could see central banks echo that sentiment at their policy meetings this week - something that could potentially weigh on gold.

 

 

Technical crude oil forecast: Levels to watch on Brent

 

From a technical analysis point of view, Brent oil continues to look constructive. The market has been trending higher with only shallow pullbacks, reinforcing the bullish tone.

 

 

A key shift came last week when oil prices reclaimed the $100 per barrel level. Since then, dips have been well-supported, suggesting buyers remain in control.

 

If we do see a pullback, initial support sits around $103.50, followed by the psychological $100 level.

 

On the topside, resistance looks thin until $110 — a level that could be tested sooner rather than later if current conditions persist. Beyond that, round handles lol $111, $122 etc., as well as psychological levels such as $115, and even $120, could come into view if tensions remain unresolved.

 

For now, unless we see a clear reversal pattern or a decisive lower low, the crude oil forecast and trend remains bullish.

 

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R