Crude oil prices retreat: Brent, WTI slip even as rebound risks persist

Crude oil prices held in a tight range this week as investors focused on the stalemate between the US and Iran. Brent, the global benchmark, ended the week at $88.28 a barrel, while West Texas Intermediate (WTI) settled at $83.45. Both benchmarks remain more than 30% below their highs for the year, and key developments could push prices higher in the near term.

No ceasefire between the US and Iran 

The biggest risk facing crude oil prices is the fact that the US and Iran have not inked any ceasefire after the recent kinetic action. They have all paused the fighting, something that Trump seems comfortable with since crude oil prices have not gone parabolic.

Instead, Trump has leaned on economic sanctions, with Scott Bessent unveiling Operation Economic Outcast. His goal is to have all countries end ties with Iran. However, analysts caution that Trump has no way to force the Iranians to the negotiating table.

China and Russia have committed to continue supporting Iran. Most importantly, the UAE, a major trading partner, continues to do substantial business with Iran. The Wall Street Journal noted that Iranians businesses were still doing business in the UAE. 

Iran has warned the UAE that it will wreck its economy if it cooperates with the US. This would include launching bombing campaigns against the Dubai International Airport and key infrastructure projects in the country. It has also threatened to cut fibre cables that brings internet to the region. 

Most importantly, Iranians have read reports about the challenges the US millitary is facing in the region. Ammunitions have fallen to worrying levels, while conditions in US carriers have worsened. 

As a result, Iran may decide to launch a preemptive attack against US targets in the region ahead of the upcoming midterm elections. Such a move would catch Trump offguard and push him to retaliate, leading to higher oil prices.

All this is happening at a time when US oil inventories remain at alarming levels. The Strategic Petroleum Reserves (SPR) have dropped substantially in the past few months. It has plunged to a 40-year low of 289 million barrels and may reach the statutory minimum of 252 million barrels soon. Also, there are signs that China will start buying oil substantially in the coming months, which will bring in more demand, and push prices higher.

Most notably, while Trump has announced a new deal for Venezuelan oil, analysts warn that it will take years for this oil to start flowing. Also, there is a likelihood that Veneuelans will oppose a deal that gives away its resources to US companies.

Crude oil price has compressed into a triangle pattern

WTI crude oil price chart | Source: TradingView

Technicals also suggest that crude oil prices have remained in a narrow range in the past few months. A closer look shows that WTI has compressed into a large triangle pattern whose two lines are about to converge. This convergence will likely lead to a big move in the coming days or months. 

The move will either be in the upside or downside, but the rising risk of kinetic action between the US and Iran raise the possibility that the price will have a strong bullish breakout.