Oil is showing extreme volatility as the market attempts to gauge the real supply prospects from the Middle East following the resumption of hostilities between the US and Iran. Brent has fallen below $78 per barrel after a more than 5% jump on Wednesday, while WTI is holding around $73. It is noteworthy that this correction is occurring even amid the fact that American troops are conducting strikes against Iran for the second consecutive day, and Iranian state media report attacks on American bases in the region. The market is clearly oscillating between panic and cautious skepticism regarding the scale of the actual damage to supplies.
At the center of the situation remains the status of the Strait of Hormuz, and around it the main risk is currently concentrated. If the strait closes again, prices are likely to climb by another $10. If supplies continue, prices are likely to remain about the same until the next escalation of the conflict. This serves as a convenient reference point for traders, reducing the complex geopolitical landscape to a binary scenario that determines oil's entire future trajectory.
Vessel tracking data released on Thursday indicated a decrease in transits through the strait. It is noteworthy where movement is still occurring. The observed movements primarily follow a route approved by Iran, closer to the northern part of the strait, which is what Tehran has aimed for with recent attacks on vessels venturing outside the designated route, while the US-backed Omani corridor remains virtually empty. This is a significant shift in shipowners' behavior, who clearly prefer the route agreed directly with Tehran rather than the route protected by US forces, indirectly confirming Iran's increasing influence over shipping routes in the strait.
Before the attack on three vessels earlier this week, transit through the strait was increasing, indicating that the process of recovering shipping was moving in the right direction. However, the resumption of normal supplies is now at risk of disruption as Iran seeks to regain control over the waterway.
Regarding the current technical picture of oil, buyers need to break through the nearest resistance at $73.79. This will allow targeting $76.30, above which it will be quite challenging to break through. The furthest target will be at $78.70. If oil declines, bears will attempt to take control of $71.70. If this is successful, a range breakout will deal a serious blow to bullish positions and push oil down to a low of $69.58 with the potential to reach $67.22.