Iran is dictating oil prices

XTI/USD

Key zone: 78.00 - 83.00

Buy: 83.50 (after retesting the 81.50 level); target 85.50–87.50; Stop Loss 82.80

Sell: 76.50 (on strong negative fundamentals); target 73.50; Stop Loss 77.20

As of August 11, WTI has climbed above $82 and is trading near $82.47 per barrel. Brent is around $87.86. The main driver of the move is not an improvement in fundamental demand, but the return of the geopolitical risk premium.

U.S.-Iran negotiations over the conditions for fully restoring shipping through the Strait of Hormuz are stalling. For the market, that is enough to start pricing the risk of disruptions to physical supply again.

But the fundamental picture is far from clear-cut.

Let’s recap:

Oil inventories are giving sellers a strong argument. In the week ending July 31, U.S. commercial crude inventories rose by 2.5 million barrels to 407 million. That is about 6% below the five-year average. At first glance, this is a bearish signal. But at the same time, gasoline inventories fell by 1.6 million barrels, while distillate inventories dropped by 3.5 million.

So the increase in crude inventories cannot be viewed in isolation. The refined products market remains significantly tighter.

U.S. refineries are operating at around 96.5% utilization, processing approximately 17.2 million barrels per day. Crude imports rose to 6.2 million barrels per day, although the four-week average remains 4.4% below the level seen a year ago.

Domestic U.S. supply is still capable of offsetting part of the external risks. But “for now” is the key phrase here.

OPEC+ Is Bringing Oil Back to the Market

• The recovery in OPEC+ production is adding further pressure to prices.
• In August, seven key members of the alliance increased their target volumes by another 188,000 barrels per day. In July, OPEC production rose by 1.17 million barrels per day to 19.85 million.
• There is one problem: the market is constrained not only by production volumes. The critical question is whether oil can physically reach where it is needed.

Hormuz remains Iran’s biggest leverage point: as long as the strait is not operating normally, the market will continue paying for risk.

Washington claims it controls Hormuz. Tehran links the full reopening of the route to an end to the U.S. blockade, the lifting of sanctions, the withdrawal of U.S. forces, the unfreezing of assets, and compensation payments.

Iran has also made it clear that an agreement on certain transit conditions does not automatically mean the strait will fully reopen.

Even if negotiations suddenly end in a deal, physical flows will not recover in a single day. That means the geopolitical premium may remain in place even after a diplomatic solution emerges.

And any new escalation could quickly push WTI back above current levels.

China Is Returning — and That Is Bad News for Sellers

In recent months, weak Chinese imports were one of the main factors helping the global market absorb disruptions in Middle Eastern supply. But that source of support for bears is gradually disappearing.

In July, China imported 8.41 million barrels per day versus 7.12 million in June. Even after the rebound, however, volumes remained 24.3% below the level of July last year.

Average imports for June–July were just 7.78 million barrels per day, compared with 11.99 million on average during the three months through the end of February.

Beijing was able to reduce external purchases thanks to massive inventories estimated at no less than 1.2 billion barrels. But that cushion is not unlimited.

As a result, independent Chinese refineries are likely to return to the market more aggressively in August, including through purchases of Iranian crude. If this process accelerates, the physical oil balance could tighten significantly.

The key question for the market today is extremely simple: what matters is not how much oil OPEC+ produces, but how much oil can actually reach the global market.

The current rise in WTI still looks more like a rebound from a geopolitical discount than the start of a new full-fledged bull cycle.

Buyers have three strong arguments:

• the risk of disruptions through Hormuz;
• declining U.S. refined product inventories;
• the potential return of China to active buying.

Sellers also have ammunition:

• rising U.S. crude inventories;
• recovering OPEC+ production;
• persistent uncertainty surrounding global demand.

Key WTI Levels

• The first resistance zone is $81.50–82.00. The price is already testing this barrier.
• A sustained move above $82 opens the way toward $83.50–84.00.
• The next major supply zone is $85.50–86.50.
• Key support is located near $78.

As long as WTI remains above this level, the recovery scenario retains the advantage.

A break below $78 would completely change the picture: the geopolitical premium would begin to leave the price quickly, and the market would receive a signal pointing back toward recent lows.

So, what does this mean?

The oil market has once again become hostage to Hormuz. OPEC+ can increase production, the U.S. can build inventories, and analysts can debate demand. All of that becomes secondary if the oil cannot physically reach the buyer.

That is why WTI is currently trading less on the fundamental balance and more on the probability that Hormuz remains a problem area.

Above $82, buyers gain room toward $83.50–84.00 and then $85.50–86.50. Below $78, the geopolitical premium starts to break down. As long as the price remains between these levels, the market stays in a high-risk zone.

Oil may rise not because the world needs more of it. It rises because the market fears there may not be enough oil where it is needed.

So we act wisely and avoid unnecessary risks.

Profits to y’all!