Crude oil price continued rising on Friday, with Brent rising to over $106 and the West Texas Intermediate (WTI) hitting the important resistance level at $98. This article explores why most options by President Donald Trump on Iran point to more gains.
Donald Trump’s options on the Iran war
President Donald Trump has several options on how to deal with the Iran war and most of them point to more crude oil price gains.
First, Trump may decide to just exit the war and leave other countries to maintain and fully reopen the Strait of Hormuz. Such a move would leave Iran in control of the Strait, a move that would affect its supply, as Iran will continue charging tolls.
Odds of this happening are slim as it would mean Trump has admitted defeat by the Iranians, a country he claims to have destroyed its whole military.
Second, Trump may decide to leave the status quo in place. In this case, status quo means continuing to block the Strait and hoping that the Iranians will “cry uncle.”
This option is also highly unlikely as Iranians have a high tolerance of pain because they are fighting for their lives. The blockade has already pushed crude oil prices to the highest level since April 7.
Third, Trump may decide to escalate by launching more attacks on Iran. He has constantly threatened to attack Iranians power plants and energy infrastructure.
Such a move would be the worst for crude oil prices as Iran has the capacity to attack oil infrastructure networks in the Middle East. Most notably, it has proven that it can destroy Saudi Arabia’s pipeline that is shipping over 7 million barrels of oil per day.
Recent US assessment is that Iran has adequate weapons to escalate, with most of its ballistic missiles and their launchers being intact. Also, Iran has not fully deployed the Houthis to shut down oil traffic in the Red Sea, which is still an option.
What about the new Iran nuclear deal?
Even the most optimistic option has some challenges for crude oil prices. This is where the US holds talks and reaches an agreement with the Iranians. The risk is that any deal signed today will be worse than the one reached in February before the attack happened.
The deal may also be worse than the JCPOA, commonly known as the Iran Nuclear Deal, that President Barack Obama negotiated. For one, Trump will need to offer concessions to the Iranians, including sanctions relief.
Israel, another party to this war, will likely sabotage any agreement that offers financial support to the Iranians. For example, it may launch another attack against Iran to force the US to accelerate the war.
Brent crude oil price technical analysis
Crude oil price chart. | Source: TradingView
The daily timeframe chart shows that crude oil prices have done well in the past few days, soaring from a low of $85 on April 17 to $106 today.
Brent has formed a large bullish flag pattern, a common bullish continuation pattern in technical analysis. This pattern is made up of a vertical line and a descending channel.
The price has moved above the 23.6% Fibonacci retracement level. It also moved above the 50-day and 100-day Exponential Moving Averages (EMA).
Therefore, the most likely scenario is where the price of crude oil continues rising in the near term, with the next key level to watch being the psychological level of $110.
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