Crude oil has calmed down since the start of the week. In the early hours of Monday, front-month WTI came within a few cents of $116 per barrel, hitting its highest level in close to four years. Just twelve hours later, it dropped back below $80.
Since then, WTI has largely been rangebound, with support coming in around $80 and resistance at $90. This means that prices are consolidating below Friday’s closing price, just before this latest leg higher. Investors are paying close attention to activity in the Strait of Hormuz, with concerns growing that it has not yet been secured by US forces.
Source: TN Trader
While the US has destroyed many Iranian vessels in the area, it has not declared the Strait safe to transit, and this is putting significant upside pressure on prices. At the same time, oil has been capped to some extent as the International Energy Agency (IEA) has proposed, according to the Wall Street Journal, releasing as much as 400 million barrels of crude from strategic reserves, its largest release ever. But time is the factor here.
If shipping is still unable to pass through the Strait of Hormuz by the weekend, then that would represent a big failure by the US and would undermine investor confidence. At the same time, there are only so many occasions when you can tap strategic reserves before they dwindle. This helps to explain oil’s current quandary.
