The oil market continues to swing between periods of escalation and de-escalation and remains highly sensitive to headline news. However, fundamental factors continue to favor bears. Let’s take a closer look at the situation and develop a trading plan for Brent.
The article covers the following subjects:
Major Takeaways
- The IEA estimates the supply shortfall at 1.8 million bpd.
- The crisis in the Middle East continues to escalate.
- Maritime oil shipments from the region have fallen to 4.9 million bpd.
- A break above $90 per barrel could provide a reason to increase long positions in Brent.
Weekly Fundamental Forecast for Oil
The Middle East continues to swing between war and the prospect of a peace agreement, keeping Brent prices oscillating within the previously identified $80–90 trading range. Disappointment over the collapse of what appeared to be a finalized agreement between Iran and Oman triggered a sharp rally in Brent crude from the lower end of the range to the upper boundary. The risk of a breakout above that level is rising rapidly, as despite the optimism among mediators, a deep divide remains between the two sides.
The oil market continues to fluctuate between escalation and de-escalation, while what investors perceive as the final chapter in the Middle East conflict is, in fact, far from over. The June agreement between the US and Iran was not a full stop but an ellipsis. Words alone will not resolve the situation, no matter how much Donald Trump threatens, demands reparations, or claims that the US controls the Strait of Hormuz.
How Oil Prices React to US President’s Remarks
Source: Bloomberg.
Brent remains highly sensitive to sensational headlines. However, more profound shifts are taking place beneath the surface of the oil market. The International Energy Agency estimates that global oil inventories are declining twice as fast as previously forecast. At the same time, the current supply deficit is estimated at 1.8 million bpd, and by the end of 2026, it is expected to reach its highest level in five years. This is despite the IEA cutting its forecast for global demand growth by nearly 50% to 1.6 million bpd as high oil prices weigh on consumption. The root of the problem lies in production cuts by Gulf countries and supply disruptions.
According to estimates from the US Energy Information Administration, oil production outages in the Middle East totaled about 5.5 million bpd in July, down from 7.5 million bpd in June. However, with the conflict resuming, the figure is expected to rise to 6.6 million bpd in August. Seaborne oil shipments from the region averaged an estimated 4.9 million bpd in the second quarter, compared with 21.6 million bpd before the US and Israeli attacks on Iran in late February.
The situation is not limited to the Middle East. The armed conflict in Ukraine and Ukrainian attacks on Russian energy infrastructure have also contributed to a decline in Russian oil exports, which fell to 3.71 million bpd in July, their lowest level since May.
Russian Crude Exports
Source: Bloomberg.
At the same time, the risk of further escalation is growing. Iran is attacking targets in Saudi Arabia and Lebanon, the Yemeni Houthis are threatening ships in the Red Sea, and the US is intercepting tankers in the Strait of Hormuz. The conflict is increasingly turning into a struggle for survival, and when tensions reach a breaking point, even a small spark can trigger a much larger confrontation.
Weekly Trading Plan for Brent
As a result, the likelihood of Brent breaking out of the previously identified $80–90 trading range is increasing. Long positions opened at $80 can be increased if Brent breaks through the $90 resistance level.
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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