Fighting Intensifies

The rally in oil prices has paused for now as traders nervously eye headlines out of the Middle East. Amidst continued fighting between the US and Iran, regional mediators are calling for a fresh ceasefire agreement and have reportedly presented both sides with a proposal for a 10-day ceasefire. Fighting has intensified dramatically in recent days with the US stepping up its strikes against Iranian targets while Iran continues to hit US and allied sites in neighbouring countries.

Strait of Hormuz Closed

The Strait of Hormuz has also been fully re-closed once again with latest reports showing two Jordanian oil tankers are currently on fire there after being hit by Iran while trying to transit the passage. Given the price action we’re seeing today, however, it suggests that traders are perhaps hopeful that both Washington and Tehran will step down and agree a new ceasefire deal. If confirmed, this should see oil prices dropping sharply. However, any rebound lower could prove short lived given the poor track record of period ceasefires and the failure of negotiations.

Bullish Risks

With both sides refusing to compromise on key standpoints it’s difficult to see how this conflict can be resolved and oil prices appear likely to remain caught in a cycle of rallying during periods of re-escalation and falling during period of de-escalation.

Technical Views

Crude

For now, the rally has stalled into a retest of the 84.60 level. This is a key pivot for the market and while below here, we could see downside resume with 77.65 the local support to note ahead of the deeper 70.76 level. However, id we break above 84.60 momentum should kick in to take price up to a test of the higher 95.06 level thereafter with the bull outlook then holding while price remains atop 84.60.