The most recent rally was purely driven by a supply run, with no regard for demand. The rally was based entirely upon the fact that there are very few ships moving, and therefore less crude oil is being delivered. A supply run occurs when a shortage of physical product creates upward pressure on the market’s price regardless of what consumers want to do.
The situation is serious because both Iran and the United States control the Strait of Hormuz. If either country restricts who passes through the Strait of Hormuz, then global oil shipments will be slowed. On top of that, the United States has issued a formal naval blockade against Iran since it failed to come to terms on a deal during the recent negotiations. Ship tracking data indicates that oil shipments from the Persian Gulf region are currently below normal.
WTI Crude Oil – Price Action Signals Further Upside
From a technical perspective, WTI oil (CL) remains below $120 and shows strong volatility. The failure to reach a ceasefire has opened WTI crude oil with a big gap higher on Monday. But the price again drops below $100 and shows strong volatility as the geopolitical news develops.
However, the price structure remains strongly bullish. As long as traffic through the Strait of Hormuz opens, oil prices will likely continue higher.