Brent crude oil price is stuck at a key level: will it surge or crash?

Brent crude oil price remained in a narrow range on Tuesday morning as investors wait for more details about the ongoing situation in the Middle East. It dropped slightly, paring some of the gains experienced on Monday. It was trading at $113.17, down slightly from this week's high of $115.

Crisis in the Middle East is escalating ahead of Trump trip to China 

Brent, the global benchmark, retreated slightly on Tuesday, but remained near its highest point this year as market participants waited for more developments in the Middle East.

Most oil analysts believe that the ongoing crisis has no easy way out, with many of them noting that President Donald Trump was trapped with no easy way out.

In a statement on Monday, Trump launched Operation Freedom, a move meant to escort ships crossing the Strait of Hormuz. After understanding the complexity of that operation, the administration clarified the statement, noting that the military will only provide a map on the ideal routes.

The situation escalated as the Iranians shot at the US military ships. Most importantly, the country launched an attack against the United Arab Emirates (UAE), where it struck a key oil facility. 

This move was likely aimed at showing the US that it had more tools in its escalation journey. This explains why Trump did not respond militarily to the attacks despite his warning to the Iranians. In a Fox News interview, he said that Iran would be blown off the face of the earth if it targeted US ships.

Looking ahead, the oil market will react to any new news from the region, with some experts, including Robert Pape, warning that the US will ultimately attack. 

At the same time, there are concerns about the ongoing drawdown of inventories. In a note on Monday, Goldman Sachs warned that the falling inventories and uneven distribution will lead to localized shortages. The bank estimates that global oil stocks held on land and sea may drop to 98 days this month from the current 101 days.

Still, on the positive side, crude oil supplies are rising gradually, with US exports being on a strong uptrend this year. Similarly, Saudi Arabia has continued to export over 7 million barrels of oil per day through the Red Sea.

Brent crude oil price forecast 

Brent crude oil price chart | Source: TradingView 

The daily timeframe chart shows that the Brent crude oil price has rebounded in the past few weeks, moving from a low of of $85 on April 17 to $113.7 today.

A closer look shows that the price has remained above the 23.6% Fibonacci retracement level. It has also moved above the 50-day and 100-day Exponential Moving Averages (EMA), a sign that bulls are in control.

Notably, it has retested the key resistance level at $114.3, where it has resisted to move above several times since the war started.

There are signs that Brent is sending mixed signals. In the first place, it has formed a double-top pattern whose neckline is at $85. On the other hand, it has formed an inverted head-and-shoulders pattern.

A move above the resistance at $114.31 will be a sign that bulls have prevailed, which will push the prices much higher, potentially to $120 and above. The alternative scenario is where the double-top pattern activates, leading to a strong bearish breakdown.