The US plan to replenish its oil reserves with Venezuelan crude, combined with increased traffic through the Strait of Hormuz, could push Brent back toward the $80–90 range. Yet that has not happened. Let’s examine what’s keeping oil prices in check and develop a trading plan for Brent.
The article covers the following subjects:
Major Takeaways
- Fear and greed are pulling Brent in opposite directions.
- Traffic through the Strait of Hormuz is increasing.
- Investors are preparing for a prolonged conflict.
- Long positions on Brent can be considered as long as the price holds above $91.
Weekly Fundamental Forecast for Oil
Why is Brent rising? At first glance, the answer seems straightforward. Brent spent August in its narrowest trading range since December as the conflict in the Middle East swung between escalation and de-escalation. Investors largely assumed that the US would not strike Iran and would instead focus on the Operation Economic Outcast. However, the resumption of hostilities quickly pushed oil prices above $95 per barrel.
Washington is not only imposing sanctions on Tehran but also trying to downplay the strategic importance of the Strait of Hormuz. According to Scott Bessent, the strait could become largely irrelevant within two years as Persian Gulf oil is redirected through alternative routes. It is too early to say whether this will happen. According to the US Energy Information Administration, around 8 million bpd currently pass through what remains a critical artery for global energy trade. Another 4–5 million bpd of Middle Eastern exports move through alternative routes.
Goldman Sachs estimates the region’s total exports of oil and petroleum products at 15–16 million bpd. This is 7–8 million bpd below pre-conflict levels, but still well above the 5–6 million bpd recorded in March. The main reason for the recovery has been increased traffic through the Strait of Hormuz.
Meanwhile, Iran does not need to attack every vessel passing through the strait. Sinking just a couple of ships could be enough to scare their owners and disrupt traffic. In reality, fear is competing with greed in the oil market. When supertanker profits reach record levels, the lure of extraordinary returns can sometimes outweigh safety concerns.
Oil Production in Venezuela
Source: Bloomberg.
So why is Brent rising? The idea that it is simply due to reduced flows through the Strait of Hormuz does not hold up. What, then, is driving prices higher? A sharp decline in global inventories? US strategic reserves have fallen to their lowest level since 1982, but Donald Trump plans to replenish them with Venezuelan oil. Venezuela has vast oil reserves, and production could potentially double with US investment.
In my view, the key factor is a shift in how investors perceive the conflict. Previously, markets expected the situation in the Middle East to stabilize and were waiting for tensions to ease before selling Brent. That outlook has changed. The standoff could now drag on for months, keeping risk premiums elevated and allowing Brent to climb higher.
Weekly Trading Plan for Brent
Against this backdrop, Brent may surge to $103 and $108. As long as it holds above $91, the focus should remain on buying the dips and adding to long positions on pullbacks. I don’t expect greed to overpower fear anytime soon. Without a meaningful de-escalation of the conflict in the Middle East, Brent is likely to continue rising.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of UKBRENT in real time mode
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