Oil Price Forecast: WTI and Brent Eye Support as Iran Talks Ease Tensions

Oil Price Forecast: WTI and Brent Eye Support as Iran Talks Ease Tensions

Oil prices fell as progress in U.S.-Iran talks reduced some of the geopolitical risk premium. WTI is testing the key $80 support area, while Brent is moving closer to support near $85. Supply risks remain high because shipping through the Strait of Hormuz and Red Sea is still weak.

Oil prices dropped on Tuesday as investors began to turn more optimistic about possible resolution to the U.S.-Iran conflict. Brent crude dropped to $89.85 per barrel, while WTI dropped to $81.50. Both prices have reached their lowest levels in over a week. As per the presidential statement on talks with Iran, things are going well towards the solution. That helped temper fears of a further attack and some concerns about Middle East oil supplies. But the situation is still unclear and things can easily turn around.

Oil traffic has remained significantly below usual levels through the Strait of Hormuz as seen in the chart below. As per Barclays, the crude oil and refined product exports averaged 2,900,000 barrels per day through the strait in the past week. That represents a decline from a week ago, when it was 5.9 million barrels per day. The shipping in the Red Sea has also decreased. The threat from the Houthis remains. That could bring another surge in oil prices if talks with Iran don’t come to a positive conclusion or if attacks on ships and energy infrastructure increase.

The weak demand is also limiting the increase in oil prices. But high prices have made people in Asia’s various markets more price sensitive and demand has slowed in these regions. This is why Brent is still trading below $90 despite the continued restriction on oil flows in the Middle East. A deal would likely push prices down, but if it breaks down once again, then prices would skyrocket.

WTI Crude Oil Tests $80 Support

The daily chart for WTI crude shows that the price has dropped from the $93.50 level back toward the $81 area. The immediate support in WTI crude oil remains the $80 region, whereby a break below $80 will push prices back toward the $74 area. On the other hand, a break above the $87 region will indicate further upside toward the $100 area in the WTI crude oil market. The long-term support remains $66 and as long as the price remains above this level, the possibility of strong fluctuations between $120 and $80 remains high. The weekly chart for WTI also shows that there is strong uncertainty in the crude oil market after the U.S.-Iran war. Prices have been consolidating between the $120 and $70 regions during the past few months. There are huge gaps during the weekend openings, which highlight the strong uncertainty in the market driven by the geopolitical crisis. A break below $80 will push the price further lower toward the $60 area. But a recovery above $90 will push WTI toward $100.

Brent Crude Oil Approaches $85 Support After Rejection From $100

Brent crude oil also dropped after hitting $100 and is now moving toward the immediate support of $85. The support is defined by the intersection of the 50 and 200 SMAs. When the price approaches these SMAs, the RSI will likely reach the midline. A strong recovery above the $90 region will indicate that prices are ready to rise further to $100. The weekly chart for Brent crude oil shows sharp shadow on the weekly candle right at the resistance of the $100 area. This indicates strong uncertainty in the short term, and prices may drop toward the $80 area before the next rally. But the RSI has recovered above the midline.