Brent crude oil price analysis as the US seizes Iranian ship ahead of talks

Crude oil price jumped by over 3% on Monday as geopolitical tensions between the US and Iran continued. Brent, the top global benchmark, rose to $95, much higher than last week’s low of $85. The West Texas Intermediate (WTI) jumped to $87 from $79 on Friday.

US boards Iranian ship ahead of talks

Crude oil prices jumped on Monday as tensions between the United States and Iran resumed. On Saturday, Iran announced that it had shut down the Strait of Hormuz and fired at some ships that attempted to cross.

Iran pointed to the fact that the US had not lived to its side of the agreement, especially with Trump’s commitment to maintain his blockade against its ships.

The crisis escalated after the Wall Street Journal reported that the US was considering boarding Iranian ships at sea. This happened on Sunday when the US seized an Iranian ship in the blockade.

In a statement on Sunday, Trump said that talks between the two sides would meet in Pakistan this week to deliberate on a deal, which would likely end his war ahead of his trip to Beijing. He also maintained his threat to attack critical Iranian infrastructure like bridges and power plants.

There are two possible outcomes of this crisis. First, the US and Iran may reach a deal that stops the war completely. Such a deal will be hard to reach as the US and Iran are wide apart on the key issues. An agreement would be bearish for crude oil prices as it would lead to the reopening of the Strait of Hormuz.

Second, a deal may remain elusive, pushing the two sides back to war, an outcome that Israel is championing behind the scenes. This deal is possible as the US has already sent over 50k troops to the region.

Trump has always used the troops he deploys, raising the possibility of a ground operation in the country. A new escalation would lead to more destruction than experienced in the first phase.

For example, Iran has warned that it will destroy oil and civilian infrastructure like desalination plants if the US intensifies its attacks. It will also attack Saudi Arabia's oil infrastructure that is shipping oil in the Red Sea.

Brent crude oil price technical analysis 

Crude oil price chart | Source: TradingView 

The three-day chart shows that the Brent crude oil price has been in a downward trend in the past few months, moving from a high of $119 in March to a low of $85 on Friday last week.

Its lowest level was slightly below the 50% Fibonacci retracement level. The coin has formed a giant morning star candlestick pattern, which is a common bullish reversal sign in technical analysis.

It has also remained above the 100-day Exponential Moving Average (EMA), a sign that bulls remain in control. Also, it is slightly above the Strong Pivot Reverse level of the Murrey Math Lines tool.

Therefore, the most likely scenario is where crude oil rises gradually as traders wait for the outcome of the talks. It will then retreat, possibly to last week’s low of $85 if the two sides reach an agreement to end the war or extend the ceasefire.