Oil is not ready to take risk

XBR/USD

Key zone: 100.00 - 103.00

Buy: 104.00 (upon a decisive break of 103.50); target 106.50-107.00; StopLoss 103.30

Sell: 98.50 (on strong negative fundamentals); target 96.50-95.00; StopLoss 99.20

The Middle East situation still does not give the market confidence to build long positions. The Strait of Hormuz remains effectively paralyzed, while Brent crude continues to rise: up about 3%, consolidating above $111, marking the highest close in a month. However, the structure of the move signals heightened caution among participants.

The US dollar is strengthening amid rising oil prices and doubts about further tightening by the Federal Reserve. Brent and WTI continue their rally after the US rejected Iran’s proposal to reopen the Strait of Hormuz. The White House stance remains firm: Iranian control over this key shipping route is considered unacceptable.

If supply disruptions persist through the end of June, Brent upside potential is estimated toward $130 per barrel in Q2.

At the same time, a new factor is starting to pressure the market — OPEC developments. The UAE announced its exit from the cartel starting May 1 and отказ from production quotas. In the US, this is being interpreted as a “political victory” for Donald Trump, who previously criticized OPEC for artificially inflating oil prices.

P.S. So far, this is the only “victory” for the US in the current Middle East conflict.

However, the market reaction remains muted: the UAE has long expressed dissatisfaction with quotas, and with the Strait of Hormuz effectively blocked, export expansion is still impossible. Therefore, the impact of the exit is more of a long-term bearish factor.

Fundamental supply risks are increasing:

• Iran has cut production by 2.5 million barrels per day and is rapidly exhausting storage capacity; current reserves last only 12–22 days (according to Kpler);
• a further reduction of up to -1.5 million b/d is possible by mid-May;
• logistics to China (the key market) imply a 3–4 month lag, so the short-term impact on Iran’s revenues is limited.

Interestingly, speculative interest in commodity-exporter currencies is rising. JPMorgan and Deutsche Bank recommend long NOK and AUD versus JPY and CHF, as well as currencies of Kazakhstan, Brazil, and Nigeria against the USD/EUR basket. However, such exotic trades come with extremely high volatility.

The combination of factors — passive central banks and rising oil prices — in the short term supports the US dollar, despite pressure from rising equity markets.

However, the oil market remains extremely sensitive to politics. Any new long positions require caution: current dynamics are driven less by fundamentals and more by unpredictable decisions from conflict participants.

So we act wisely and avoid unnecessary risks.

Profits to y’all!