Brent crude oil price held steady above $110 on Wednesday, paring back some of the losses experienced a day earlier when odds of a US-Iran deal rose. It has jumped by over 56% from its lowest level in July this year. This rally may continue as the crisis in the Middle East escalates.
US-Iran crisis set to escalate
Brent and the West Texas Intermediate (WTI) have risen and settled at a crucial resistance level this week. This rally is being driven by the ongoing crisis in the Middle East, which analysts expect will escalate before or after the midterm elections.
Iran’s IRGC has continued shooting ships attempting to cross the Strait of Hormuz. As a result, ships are coordinating with Iran for passage as the cost of transiting continuing the upward trend. Insurance costs have soared, while ship captains are seeking as much as $1 million for transiting.
The biggest risk is where the US-Iran crisis escalates. Analysts predict that the US and Israel will decide to focus on Iranian oil infrastructure, including Kharg Island, which handles 90% of its exports. Trump has warned that these strikes will start after the midterm elections.
Such a move would push Iran to retaliate against energy infrastructure in the region, a move that will lead to a prolonged energy crisis.
READ MORE: Oil falls from five-month highs after report of US-Iran peace proposal
At the same time, Saudi Arabia and Houthis have continued attacking each other. Houthis have launched strikes against key energy locations and shut down the Bab el-Mandeb Strait that handles millions of oil barrels a day.
Ukraine has also intensified its attacks against Russian energy targets. Earlier this week, the country’s military launched strikes against a major refinery in St. Petersburg. These events mean that Russia will struggle to refine and export its oil.
The next major catalyst for Brent and the West Texas Intermediate (WTI) will be the upcoming US oil inventories data. Economists expect the report to show that oill inventories dropped by 0.3 million barrels last week after falling by 8.3 milion a week earlier.
Brent crude oil price technical analysis
Crude oil prices chart | Source: TradingView
The daily chart shows that Brent crude has staged a strong comeback after bottoming at $70 in July this year. It has remained above the ascending trendline that links the lowest swings since July.
Brent has also held steady above the 50-day Exponential Moving Average (EMA), which is a bullish sign in technical analysis. It has remained above the Supertrend indicator.
A closer look shows that Brent is at an important level that coincides with the highest point on September 11. A move above that level will invalidate the double-top pattern and point to more gains towards the key psychological level of $115. Crossing that level will point to further gains towards $119.
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