Oil ~3 Higher After New Iranian Strike on Tanker

WTI reversed Friday's losses as Washington and Tehran appear even farther away from an agreement, and the chance of a re-escalation is rising after reports of a tanker coming under attack.

The Key Elements Behind the Price Move

• Tensions in the Middle East are rising after weekend reports of Iranian attacks on tankers in the Persian Gulf.
• Iran increased its demands for a deal, making a near-term reopening of the Strait less likely.
• Analysts see crude prices remaining elevated over the next few months but falling below pre-war levels next year.

Rising Obstacles to a Deal

Last week, crude prices fell by over 7% amid hopes of reaching a deal to reopen the Strait of Hormuz, but on Monday, WTI was already ~3% higher at the time of writing as markets see rising tensions in the region. One issue for the market is accounting for two parallel negotiations: The first is between Oman and Iran over which routes and other conditions for shipping through the Strait. And the second, between the US and Iran over reopening the waterway, lifting the blockade on Iranian shipping, and ultimately addressing Iran's nuclear ambitions. While there has been substantial progress on the first, the Strait cannot reopen without the second, where negotiators seem deadlocked. Recent optimistic headlines about reaching a deal refer to the Iran-Omani negotiations, which are more technical and don't address major issues, such as potentially charging tolls.

Iranian officials insist that even if there is a deal with Oman about shipping routes, they will not open the Strait unless they receive important "concessions" from Washington, including compensation. Those demands are non-starters for the US, so there has been no progress, despite last week's optimistic comments from both US President Donald Trump and Treasury Secretary Scott Bessent. For its part, the US has said it will lift the blockade of Iranian ports as soon as a deal to restore commercial shipping without impediments is announced. However, as has been the case in the past, the sticking issue is word choice rather than practicality as both sides try to sell the agreement to supporters. Over the weekend, Iran stepped up its demands for a deal to reopen the Strait, including a permanent end to the war and withdrawal of US forces from the region and a release of frozen Iranian assets. In the failed MOU, those conditions were to be negotiated after the Strait reopened, indicating a hardening of Iran's position.

Can Attacks Resume?

The price of crude bumped higher today following reports that Iran attacked another tanker in the Persian Gulf, off the coast of Oman. This follows the UAE reporting a ship being struck on Saturday. If confirmed, another incident could raise tensions, as the US has conducted retaliatory strikes on Iran in the past after the Islamic State attacked shipping in the Strait. If that were to happen, crude prices could bump higher. Meanwhile, more analysts are predicting that crude prices will remain elevated through the rest of the year but will drop in 2027, assuming the conflict is resolved by then. Citi is the latest to reverse its call from earlier in the summer, now expecting a Q4 average Brent price of $70 instead of the $60-65 it had predicted previously. However, that's below the over $83 price on early Monday, and crude could drift lower if there are no more attacks on shipping and the US does not retaliate in the coming days.

WTI Nears Upper Bollinger Band, But Can It Break Higher?

Despite rising from around $76 a barrel, oil is still trading within the Bollinger Bands, with the upper band sitting just a few cents above the current price. Besides volatility, light crude faces a major descending trendline from the $93 peak, suggesting added pressure while the bands are flat. A breakout past these two hurdles could open the door to $80, exposing the swing high at $81 and the gap open near $83. However, if the correction down to $73.50 is not completed yet, failing to breakout higher could see prices back below the middle BB at $76 and pave the way for the $74 ascending trendline and the lower BB at $73. If bulls fail to sustain the latter, WTI could revisit the $70 handle before a meaningful bounce is seen.

Source: SpreadEx | Light Crude, 4-Hour Chart