The West Texas Intermediate (WTI) crude oil price retreated to $93 on Friday as investors reacted to a new report suggesting that the US and Iran were considering a phased strategy to reopen the Strait of Hormuz. Brent, the global benchmark, also retreated to $105.65.
US and Iran talk to open the Strait of Hormuz
Iranian and American delegations are working to reopen the Strait of Hormuz, a move that would help to lower gasoline and diesel prices globally.
According to Reuters, the deal would be similar to the one signed under the Memorandum of Understanding (MoU). In it, Iran would agree not to strike ships attempting to cross the Strait, while the US would remove its blockade against Iranian ports.
Such a deal would be mutually beneficial to both sides. Iran would start making money, while Trump would see lower prices ahead of the midterm elections. That would be important as Republicans are facing a bloodbath, mostly because of the rising inflation.
Still, there is a likelihood that the deal will not be possible because of Iranian demands and the fact that officials believe that higher oil prices will hurt Trump during the elections. Already, Polymarket places the odds that Democrats will win the Senate at 63%. Odds that they will win the House of Representatives rose to 98%.
Crude oil prices are also falling amid reports that Saudi Arabia is restarting the East-West Pipeline that runs to its Red Sea export hub of Yanbu. The country has resumed operations on the pipeline this week, adding hopes that oil flows will increase soon.
The risk, however, is that Houthis still control the Bab el-Mandeb Strait, where they are striking Saudi Arabian ships. Most importantly, it is likely that the pipeline will be hit again, either by Iran, Iraqi militias, or the Houthis.
The bottom line is that crude oil supplies will remain under pressure in the near term since traffic through the Strait of Hormuz has dwindled. While the US insists that millions of barrels are flowing through the Strait, traffic data shows that just a handful of vessels are crossing.
WTI crude oil price technical analysis
Crude oil price chart | Source: TradingView
The daily chart shows that WTI crude oil has rebounded in the past few months, moving from a low of $67 in July to the current $93.12. It has formed an ascending channel and is slightly above the lower side.
WTI has moved slightly above the 50-day Exponential Moving Average (EMA) and the Strong Pivot Reverse level of the Murrey Math Lines tool. It has remained above the Supertrend indicator.
Therefore, the path of least resistance for crude oil is bullish, with the next key target to watch being at $106.70, its highest point on September 15. A move above that level will point to more gains, potentially to $110. A drop below the lower side of the channel will invalidate the bullish outlook.
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