Fundamental Analysis West Texas Intermediate (WTI) US Oil registers a second day of gains, closing up 1.76% on Tuesday to trade near $86.95 per barrel as of writing. Crude Oil gains strength amid a newly added geopolitical risk premium, driven by tensions between the US and Iran following threats to crude oil supplies. US troops attacked two Iranian rockets on Larak Island, situated in the Strait of Hormuz on Sunday, which is the first such attack since late July. In retaliation, Iran launched an attack against US positions in Jordan, as President Donald Trump of the US threatened another military strike on Iran. Worries in oil markets are also prompted by threats to Kharg Island, which is crucial in the export of Iranian oil. In the event of any interruption in these operations, it would affect the amount available to international markets, thereby keeping the risk premium high for WTI. Another factor worth noting is the condition in the Strait of Hormuz. Operational risks in this vital channel came into the limelight when one supertanker was set on fire after a clash between two naval mines. The flow of oil through the strait has not stopped; nonetheless, some Gulf producers, such as Saudi Arabia, the UAE, Kuwait, and Iraq, continue to export oil. However, the Ukrainian drone and missile strikes against Russian refineries are further raising fears about refined product supplies. Lower capacity at Russian refineries, together with the risk of disruptions to Middle East supplies, is helping to support refining margins while fueling fears about fuel supplies worldwide. In this situation, the events unfolding in the conflict between the United States and Iran, as well as security in the Strait of Hormuz, continue to be the key short-term factors moving WTI prices.
Technical Analysis Crude Oil (USOIL) has recovered on the 4-hour chart, with prices rising to the $86.79 area after a sharp bounce off the $79.00-$80.00 range. The technical picture has become more bullish, with higher lows being made following the Aug 26 low. Prices have moved beyond the $84.50-$85.00 consolidation range and are now testing the $86.80-$87.00 resistance level. A close above $87.00 on the 4-hour chart will strengthen the upside structure and open $88.30 resistance, followed by $89.20 and the $90.00 area. Momentum oscillators are confirming the recovery, but are warning that the move is getting extended. The 14-period RSI is at 72.3, putting momentum within the overbought territory. This is not necessarily a signal of a reversal, as strong momentum can keep RSI in overbought territory, but it does increase the likelihood of a correction near resistance levels. The Stochastic oscillator is near the top line, indicating strong buying activity but also suggesting that an upside correction may be needed. The Ichimoku configuration has become constructive. The price is trading above the cloud, and the future cloud shows a positive formation, indicating strong trend support below the market. Tenkan-sen and Kijun-sen are also below the current price, creating two layers of support at $84.50-$85.00 and $83.60-$84.00, respectively. While candles are above the cloud and these dynamic levels, the bias is bullish on the four-hour chart. On a Fibonacci basis, the recovery is heading towards the upper half of the previous swing range. $84.50 level serves as a critical 23.6% retracement zone, while the $83.60 level is a stronger 38.2% retracement zone, and $81.75-$82.00 is a 50% retracement zone. A retracement to $84.50-$85.00 should be considered a healthy retest; however, a breakdown below $83.60 would deteriorate the structure, and the eye will turn to $81.75. The bullish picture still prevails as long as prices remain above $84.50. If the price breaks above $87.00, it could rise to $88.30, $89.20, and maybe even $90.00. Otherwise, price rejection near $86.80-$87.00, followed by a close below $84.50, indicates weakening momentum. On balance, the chart picture is bearish, yet elevated RSI and Stochastic levels increase the likelihood of corrective moves.
