The conflict in the Middle East gives Iran the opportunity to ship its oil through the Strait of Hormuz and charge fees to tankers from other countries. Even if the US retreats from the region, Tehran will continue to charge these fees. Let’s discuss this topic and make a trading plan for Brent.
The article covers the following subjects:
Major Takeaways
- Brent is falling on rumors of a ceasefire.
- Iran controls the Strait of Hormuz.
- Oil may rise to $200.
- Long positions on Brent can be opened on pullbacks from $98.5 and $95.5.
Weekly Fundamental Forecast for Oil
During the trade wars, Donald Trump threatened US allies with sweeping tariffs. In the Middle East, the US is inclined to abandon its partners, leaving them to face the consequences alone. The US president employs his favorite tactic of threats followed by a retreat. In contrast, Iran has shown no intention of backing down. As a result, the US is expected to reduce its military presence in the region over the next 2–3 weeks, a development markets interpret as de‑escalation, which has contributed to a decline in oil prices.
In March, Brent saw a record 63% rally due to bombings of Iran by Israel and the US, and Tehran’s retaliatory actions, including the closure of the Strait of Hormuz. Most of the 15 million barrels per day of crude oil passing through it were transported to Asia. Although Europe was also severely affected.
Oil Shipments Through Strait of Hormuz
Source: Bloomberg.
According to FGE NexantECA, weekly supply losses due to the closure of the Strait of Hormuz amount to approximately 10 million barrels per day. If the closure extends for another 6–8 weeks, Brent will likely trade in the range of $150–$200 per barrel. Saudi Arabia has an alternative route via the Red Sea. This route could potentially provide up to 7 million barrels per day. However, in reality, only 5 million barrels per day pass through, as Saudi Arabia keeps the rest for domestic use.
Tankers from Iran and its allies continue to pass through the Strait of Hormuz. Moreover, in an effort to stabilize the oil market, the US has lifted sanctions against Iran.
Tanker Traffic Through Strait of Hormuz
Source: Bloomberg.
When Donald Trump says he plans to end the conflict in the Middle East in two or three weeks because the US has supposedly achieved its goals, he does not specify what will happen to the Strait of Hormuz. The US leader is offering importers a choice: either buy oil from the US or get their oil from Iran by force, taking control of the world’s biggest oil supply route. In other words, the United States will no longer assist other countries.
Without a clear victory in the war, the Strait of Hormuz will remain under Iran’s control. Meanwhile, Iran continues to demand compensation for damages. If oil prices stay elevated and transit tolls continue or expand, this could effectively serve as a form of compensation for Iran.
Even if Washington and Tehran reached a peace agreement and reopened the Strait of Hormuz, it would take months to restore the damaged infrastructure. Brent prices would certainly drop. However, a return to pre-war levels of $65–70 per barrel by the end of 2026 is highly unlikely.
Weekly Trading Plan for Brent
In other words, as long as the conflict in the Middle East continues and the Strait of Hormuz remains under Iranian control, pullbacks in Brent quotes should be seen as nothing more than a correction. The upward trend remains intact. A pullback to $98.5 or $95.5, or a return above $106 per barrel, is a good opportunity to open long positions.
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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