Brent crude oil price remained on edge on Wednesday as traders reacted to the ongoing happenings between the US and Iran. It dropped slightly to $98.35, down by over 17% from its highest point this year.
US extends Iran ceasefire
Brent, the global oil benchmark, remained inside a narrow range after President Trump announced an open-ended ceasefire with Iran after the country’s negotiators failed to show up in Pakistan.
JD Vance, the US Vice President, and top Trump allies like Jared Kushner and Steve Witkoff were ready to travel to Pakistan for the talks. Iranians, on the other hand, saw the war as meaningless as the US continued its blockade.
Most importantly, Iranian officials believe that time is on their side as US media reports suggest that Trump is already bored with the war and is keen to move to other things.
Trump has observed gasoline prices jump to $4 and his approval rate plunge to a record low. He has also lost the support of some top fans like Tucker Carlson, Megyn Kelly, and Alex Jones.
There is a risk that the war will resume as soon as this week as Iran protests the naval blockade. Iran also wants oil prices to rally, a move aimed at hurting the US and preventing future attacks.
As such, a new resumption of war will likely lead to substantially higher crude oil prices in the near term. For one, Iran may target crucial oil infrastructure in key countries like Saudi Arabia and the United Arab Emirates.
Iran may also leverage its allies in Yemen to shut down the Red Sea, where vast amounts of oil pass through. The US, on the other hand, may attack Iranian oil infrastructure, including Kharg Island.
In a statement this week, Professor Robert Pape, a top thinker, warned that the escalation ladder will be brutal as each side is aiming to save face
The next important catalyst for crude oil price will be the upcoming US inventory data, which will come out later on Wednesday.
Economists expect the upcoming report to show that inventories dropped by over 1 million last week after falling by over 913k a week earlier. Inventories have been in a downward trend after peaking at over 16 million in February this year.
Brent crude oil price technical analysis
Crude oil price chart | Source: TradingView
The weekly chart shows that the Brent crude oil price has rebounded from this month’s low of $86 to the current $98.30. This rebound came after it formed a morning star candlestick pattern.
Brent has jumped above the 38.2% Fibonacci retracement level. It also remains slightly above the 50-day Exponential Moving Average (EMA).
There are signs that oil has formed a bullish flag pattern, which is made up of a vertical line and a descending channel. A bullish flag is one of the most common bullish continuation patterns in technical analysis.
The Relative Strength Index (RSI), which was falling previously, has turned around and rebounded to 61.
Therefore, the most likely scenario is where Brent crude oil price rebounds and eventually moves above the important resistance level at $100 in the coming weeks. A case can be made that the price will surge to the year-to-date high of $119 when the US and Iran moves up the escalation ladder.
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