Oil prices surged as traders exercised caution following the escalation of tensions between the US and Iran over the weekend, which dampened optimism regarding the easing of tensions in the Middle East.
Brent crude oil prices rose by 5.5% to $95.33 per barrel after the US Navy seized an Iranian vessel during a chaotic weekend, where Tehran fired upon ships and reasserted control over the Strait of Hormuz. It's worth noting that just last Friday, Iran announced that this vital shipping route, the Strait of Hormuz, was fully open.
The rise in oil prices indicates a new wave of instability in the energy market. The seizure of the Iranian ship by the US Navy, along with the attacks on vessels and Iran's restoration of control over the Strait of Hormuz, triggered a sharp deterioration in sentiment among traders. This weakened the initial optimism sparked by Iran's statements about the full openness of the vital waterway made just a few days earlier.
The weekend events starkly contrast with earlier hopes for a de-escalation of the conflict in the Middle East. The heightened tensions between the US and Iran create uncertainty for oil supplies, which directly impacts global prices. Traders, fearing further disruptions, prefer to hedge their positions by mass buying futures, thereby pushing prices upward.
The Strait of Hormuz is a critical transport corridor for global energy, through which a substantial portion of the world's maritime oil shipments pass. Iran's resumption of control and incidents like the seizure of the vessel effectively put the market on high alert.
Nevertheless, expectations for a diplomatic resolution keep investor sentiment on a positive note. The two-week ceasefire is set to expire this Tuesday, and all attention is on whether the US and Iran can resume negotiations to reduce tensions and reopen this key waterway after the failure of initial talks in Islamabad.
President Donald Trump and Iranian officials consistently express differing opinions regarding the next phase of the conflict, creating uncertainty about whether peace negotiations between the two sides will occur. Iran has indicated that it may not join the second round of talks this week while the US maintains a naval blockade, exacerbating the standoff. Trump, who stated on Friday that a deal with Iran was nearly reached, threatened on Sunday morning to destroy all power plants and bridges in Iran if negotiations fail.
Regarding the current technical landscape of oil, buyers need to reclaim the nearest resistance at $92.54. This would allow targeting $100.40, above which it will be quite difficult to break through. The furthest target will be $106.83. In the event of a decline in oil prices, bears will attempt to take control of $86.67. If successful, breaking through this range would deal a significant blow to the bulls, pushing oil down to a low of $81.38, with the prospect of reaching $74.85.