Crude oil prices extended their recent decline last week, with Brent crude settling at $73.6 per barrel, a sharp drop from the year-to-date high of $119.4. West Texas Intermediate (WTI) also slipped below the key $70 support level, as geopolitical tensions between the United States and Iran failed to provide a sustained boost.
The ceasefire between Washington and Tehran showed signs of unraveling over the weekend after Iran struck a Singapore-flagged oil tanker. The U.S. retaliated by hitting Iranian targets, prompting further Iranian attacks on another vessel and strikes near Bahrain. Meanwhile, Hezbollah, an Iranian-backed group, rejected a ceasefire between Israel and Lebanon, raising fears of a broader conflict that could disrupt oil supplies at a time when global inventories are already declining.
Despite these hostilities, oil prices have not rallied. Market participants appear to be pricing in a lower risk premium, partly because U.S. President Donald Trump has signaled reluctance to return to full-scale war. Media reports suggest Trump has grown weary of the conflict and is concerned about its impact on his approval ratings and the upcoming midterm elections. Intelligence assessments also indicate the U.S. faces a major weapons shortage, further reducing the likelihood of a prolonged military engagement.
On the supply side, the Strait of Hormuz remains open, with an estimated 20 million barrels of oil passing through daily. This has helped ease fears of a sudden supply crunch. Additionally, the U.S.-Iran deal, which Trump had justified by warning of critically low inventories by July, appears to be holding for now, though the recent exchanges threaten its stability.
Another factor influencing crude prices is Ukraine's intensified campaign against Russian energy infrastructure. President Volodymyr Zelensky announced plans to boost attacks over the next 40 days, targeting refineries, weapons plants, and assets in Crimea. These strikes have disrupted Russian oil exports, adding a layer of supply risk that could support prices if disruptions worsen.
From a technical perspective, Brent crude's daily chart shows a sustained downtrend. The price has fallen below the 61.8% Fibonacci retracement level, and the 50-day and 100-day moving averages have formed a bearish crossover. The Relative Strength Index (RSI) and MACD indicators continue to point lower, suggesting further weakness ahead. The next key support level is at $65, while a move above $80 would invalidate the bearish outlook.
For context, earlier this year, Commerzbank cut its oil and gas forecasts but still expected prices to remain above pre-war levels through 2027. However, the current price action suggests that the market is increasingly focused on demand concerns and the potential for a diplomatic resolution to the US-Iran standoff.
In summary, while geopolitical risks remain elevated, the path of least resistance for crude oil appears to be lower in the near term. Investors should monitor developments in the Strait of Hormuz, Ukraine's strikes on Russian refineries, and any shifts in U.S. policy toward Iran.
This article is for informational purposes only and does not constitute financial advice.
