FX.co ★ Oil: Slow and Steady Wins the Race

Oil prices have risen for the third consecutive day after Donald Trump labeled Iran's conditions as absolutely unacceptable. The opponents are at a stalemate, neither engaging in warfare nor able to negotiate peace. The Strait of Hormuz remains closed, intensifying the risks to a recovery in Brent's upward trend. Moreover, the US President does not rule out the resumption of bombings, while Tehran promises a strong response.

The conflict in the Middle East has caused the oil market to shift from surplus to deficit. The International Energy Agency predicted a record surplus of 4 million barrels per day in December. The estimate for April was revised down to 410 thousand barrels per day, as it was believed that the confrontation between the US and Iran was nearing an end. Currently, there is talk of a deficit of 1.8 million barrels per day, and that's assuming the Strait of Hormuz opens by the beginning of summer. So far, investors have no particular illusions about this.

Dynamics of Spot and Futures Premiums

The shift in the black gold market from surplus to deficit at the beginning of April triggered panic and a surge in spot market premiums compared to futures, reaching $30 per barrel. However, since then, this measure has fallen by 90%, as supply losses were offset by global oil inventories.

This situation cannot continue indefinitely. The IEA estimates the oil supply shortfall at 12.8 million barrels per day. Its growth for April totaled 1.8 million barrels per day. The US Energy Information Administration has raised its forecast for the reduction of global oil stocks in 2026 from 300 thousand barrels per day to 2.6 million barrels per day—provided the Strait of Hormuz opens in early June.

Brent's rally is being restrained by factors such as increased production in the US, Brazil, and other countries, the redirection of supplies by Saudi Arabia and the United Arab Emirates, and a decrease in oil and gas exports from China.

Dynamics of China's Gas Imports

The capacities of these countries are limited, and the growing deficit will push Brent higher unless, of course, the conflict in the Middle East becomes a thing of the past. In this regard, Trump's words that help from Beijing is not needed to resolve this issue provide hope for sellers of North Sea crude.

China is the main buyer of Iranian oil and could exert pressure on Tehran. It seems that the White House has a plan to compel the Islamic Republic to sign a peace agreement. However, so far, the methods employed by the Americans have not been effective.

Technically, on the daily chart, Brent shows an attempt by the bulls to consolidate above important supports in the form of clustered moving averages and a pivot level of $105.85 per barrel. As long as it remains in buyers' hands, the chances of a continued rally towards $115 and above are quite high. Traders should focus on forming long positions in North Sea crude. Sales will become relevant if they fall below $104 per barrel.