It took Brent just one week to recover the losses from the previous month. The escalating conflict in the Middle East is fueling bullish market sentiment, driving investors to buy Brent. Its near-term outlook remains clear. Let’s analyze the situation and develop a trading plan.
The article covers the following subjects:
Major Takeaways
- China’s oil imports continue to fall.
- Gulf states seek alternatives to the Strait of Hormuz.
- Global demand growth is slowing.
- Consider buying Brent, targeting $91 and $93.
Weekly Fundamental Forecast for Oil
Which came first, the chicken or the egg? Does the conflict in the Middle East move oil prices, or do swings in Brent shape the course of geopolitical tensions? Both Washington and Tehran have limits they cannot ignore. The US wants to avoid an inflation shock and a global economic downturn, while Iran depends on oil revenues to keep its regime afloat. The real question is where those limits lie.
Fear has taken over the market. Brent keeps rallying on the back of the NACHO narrative, or “Not A Chance Hormuz Opens.” Concerns over the sharp decline in traffic through the Strait of Hormuz, the world’s key oil shipping route, are overshadowing a host of bearish factors. Traders are largely ignoring the stronger US dollar, slowing global demand led by China, and growing export capacity through alternative routes.
Traffic Through the Strait of Hormuz
Source: Bloomberg.
OPEC expects oil demand growth to decelerate in 2026. In its latest forecast, OPEC expects demand to grow by 780,000 bpd, down from 970,000 bpd in its previous forecast. That is below the International Energy Agency’s forecast of 1 million bpd and the US Energy Information Administration’s estimate of 1.2 million bpd. The more cautious outlook reflects a sharp drop in Chinese oil imports. In June, imports fell 41% year over year to 29.27 million bpd, the lowest level since October 2016. That was 12% below the eight-year low recorded in May.
China’s Oil Imports
Source: Bloomberg.
Goldman Sachs has identified another bearish factor for Brent. According to the bank, additional pipeline capacity in the Gulf states could reduce the region’s dependence on the Strait of Hormuz by 45% by the end of 2027 and by 60% by the end of 2028. Skeptics, however, argue that building alternative routes is easier than protecting them from potential attacks.
Brent’s decline to prewar levels in early June gave Washington more room to maneuver. Lower oil prices allowed the US to resume military operations, supported by strong oil exports and still-sizeable strategic reserves. Even after falling to 316.5 million barrels, those reserves remain substantial despite being at their lowest level since the 1980s.
US Strategic Oil Reserves
Source: Bloomberg.
Washington knows how this story is likely to unfold. As in late February, Brent is expected to rally on market sentiment before traders gradually shift their focus back to bearish fundamentals. That should limit further gains, making it unlikely that Brent will break above $100 per barrel and hold those levels for long.
Weekly Trading Plan for Brent
Given the current oil market conditions, it is advisable to add to long trades during pullbacks at the lower boundary of the $70–$80 range. Target levels can be raised to $91 and $93.
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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