Crude oil prices retreated on Friday, with Brent and West Texas Intermediate (WTI) both slipping below their monthly highs. WTI fell to $95.46, roughly 10% below its peak for the month, while Brent, the global benchmark, dropped to $103.90 from this month’s high of $109.96.
Saudi Arabia and Houthi risks are rising
Crude oil price retreated last week, even as the crisis in the Middle East escalated. This escalation accelerated during the weekend as Ansar Allah, popularly known as Houthis, launched major attacks against Saudi Arabia. They attacked oil depots near Riyadh Airport in retaliation for Saudi’s attacks against Sanaa.
These events suggest that the crisis will escalate, with Houthis focusing on Saudi Arabia’s oil infrastructure. Already, the East-West pipeline has been shut, and some analysts believe that reopening it will take months. And even when it is repaired, the pipeline will be at risk of further attacks by Houthi, Iran, and Iraqi groups.
All this is happening as traffic through the Strait of Hormuz remains significantly lower than before the war started in February.
Worse, there are signs that Russia and Ukraine are intensifying their attacks on key energy infrastructure. These events mean that oil supply will remain under pressure in the foreseeable future.
At the same time, there are signs of a disconnect between crude oil prices and that of refined products. In the US, the average gasoline price has jumped to $4.4, while diesel has jumped to a record high.
Additionally, there are signs that the US and Iran are not close to a deal. Iran has maintained that it will only reopen the Strait of Hormuz if the US goes back to the Memorandum of Understanding (MoU).
Trump, on the other hand, has signaled that he is not in a hurry to end the war. In his recent speeches, he has hinted that the war will end after the midterm election, which is 44 days away.
There are also signs that he is willing to escalate against the Houthis after he returned to the White House from his weekend trip to Camp David.
All these events suggest that oil supply will remain under pressure in the coming weeks or months, which may lead to higher prices.
Brent crude oil price technical analysis
The daily chart shows that Brent, the global benchmark, peaked at $109.96 last week and then pulled back to $103.36. It is common for an asset to retreat after it nears a major resistance level.
Notably, Brent has formed a break-and-retest pattern, which often leads to a strong rebound over time. It has remained above the 50-day and 100-day Exponential Moving Average (EMA).
Therefore, oil prices will likely continue rising, potentially to $110 and above. A move above last week’s high of $109.96 will point to more gains, potentially to the year-to-date high of $120.
