Brent Back to War Peak Amid Iran Stalemate

Crude prices have risen to the highest level in weeks near the war peak as US inventories drop and reports circulate that the White House is preparing to maintain the Iran blockade for an extended period, with conflicting reports on whether airstrikes will be resumed.

What's Moving the Market?

• US inventories crashed but remain above the average for this time of year, indicating there is still some room for supply and demand to play out.
• Reportedly, the US is planning to maintain a blockade of Iran for an extended period to force concessions amid rumours of renewed airstrikes.
• UAE announces exit from OPEC, effective May 1, and expects to increase production after the Strait of Hormuz reopens.
• The Fed held rates as expected, but a surprising number of dissenters warned of inflation, giving the market a hawkish impression.

US-Iran Stalemate Pushes Brent Higher

The international price of crude oil jumped over 5% on Wednesday, continuing a multi-day rally that has pushed Brent to levels not seen in weeks. The move came after media reports that US President Donald Trump had decided to continue the blockade of Iranian ports instead of resuming airstrikes or ending the conflict. However, other media reports revealed that Trump will be briefed on combat options for a "final blow" to force Iran to give up its nuclear ambitions. Meanwhile, Iran continues to threaten the Strait of Hormuz, keeping it practically closed, and refuses to open the passage unless the US lifts its blockade.

Last week, US inventories fell by 6.2 million barrels, continuing the trend of weekly drawdowns, suggesting that global demand has indeed shifted, with refiners turning to the US to plug the supply gap. However, inventories are still 1% above the 5-year average for the season, as mild weather in Europe and the US has helped slow demand. Nonetheless, retail gasoline prices in the US have risen to their highest level since the middle of 2022, adding to inflationary pressure.

UAE Decision to Leave OPEC Largely Dismissed Amid FOMC

Putting pressure in the other direction is the UAE's surprise decision to exit OPEC at the start of next month. Most of the country's exports have been trapped behind the Strait of Hormuz, and the nation's energy minister argued that world demand would increase once the Strait opens. Leaving the cartel means that OPEC's fourth-largest producer will no longer be bound by production limits. It also exposes rising discord among Gulf nations, which are seeing their oil market share drop amid the conflict to 44% amid shut-ins that are forcing production cuts.

On the subject of disagreements and inflation, the FOMC voted to hold rates unchanged on Wednesday, as was widely anticipated. But there were four dissenting votes, the highest number since 1992. Three of the dissenters agreed with the hold but opposed an easing bias in the statement, overall leaving the market with the impression that the Fed is more hawkish. The odds of a rate cut this year fell from around 30% to practically nil, meaning the Fed is now unlikely to cut rates in 2026. Meanwhile, this was Jerome Powell’s last meeting as the sitting chair, but he said he plans to remain a governor indefinitely, which added to the hawkish narrative.

No End in Sight for Hormuz Blockade

Markets are adjusting to the new uncertainty of a persistent blockade of the Strait. But there is considerable uncertainty about how long Iran can hold out, given the lack of credible information from inside the Islamic Republic. US producers are reluctant to increase output and invest heavily in expansion despite higher prices, since the Strait could be opened at any moment. The situation keeps oil prices elevated, within breathing distance of the highs seen at the start of the war.

Brent Pennant Breakout or Double Top

The price of Brent has now officially broken above the upper descending trendline connecting the peaks of $116 and $114, coming alarmingly close to the war high and potentially leaving behind a pennant pattern. If bulls can sustain prices above the trendline, with a retest probable, the black gold could start a 40%+ move from the breakout level, equal to the measured-move projection of the pennant. Resistance levels ahead in the short term lie at $120, $125, and so on. However, turning back within the pattern in case of a double top would open the door to $100 once again if the middle Bollinger Band at $105 gives way to bearish price action, with a breakdown exposing the lower BB near $97 currently.