What is happening in the Middle East?
US forces conducted a ninth consecutive day of airstrikes on military facilities, air defenses, and communication networks in Iran. US attacks intensified following the deaths of two American citizens after an Iranian attack on a base in Jordan. Additionally, Tehran attacked targets in Bahrain (where the US 5th Fleet is stationed), Kuwait, and Iraq.
Movement of ships and tankers through the key Strait of Hormuz (accounting for approximately 20% of global oil and LNG transport) has practically come to a standstill following a series of attacks on commercial units. Some ships are attempting to sail with transponders turned off, however, Iranian IRGC forces are trying to stop ship traffic through blockades and attacks. Additionally, Iran appealed to Houthi rebels in Yemen to block the Bab al-Mandab strait in the Red Sea if the US strikes Iranian energy infrastructure.
Tension in the fuel and commodities market
Brent oil exceeded the $90 per barrel level for the first time in over five weeks, gaining on a wave of rising geopolitical risk premium. Gasoline prices at stations in the United States returned above $4 per gallon, generating political pressure ahead of the November midterm elections. Additionally, the 3-2-1 crack spread is reaching nearly $70 per barrel, showing how extremely tight the fuel market is. This is further influenced by the situation in Russia, where exports of almost all key petroleum products have been suspended.
Diplomacy and the chance for a turnaround (TACO)
Despite the ongoing exchange of blows, the Iranian side reported that diplomacy remains active, and proposals are being passed through mediators, mainly Qatar and Pakistan. US Secretary of State Marco Rubio noted that Iran is sending signals about wanting to enter negotiations, and within the Iranian authorities, divisions are visible between supporters of an agreement and hawks.
Are we facing a diplomatic turnaround?
President Donald Trump announced an intensification of attacks on Iranian infrastructure starting Wednesday. Markets interpret this as a high-stakes game. Increasing military pressure from the US may serve as a prelude to forcing a return to the negotiating table (i.e., the TACO moment). Should de-escalation occur, the evaporation of the geopolitical premium could trigger a sharp downward correction in the oil market.
Currently, we are observing a retreat from daily peaks around $90 per barrel to $88 per barrel, which was Friday's close. The oil market remains extremely tight, and Goldman Sachs predicts further increases. Nevertheless, considering the history and behavior of Donald Trump, any signal of easing could lead to a 5-10% correction.
Currently, since the start of the conflict, the price is nominally over 27% higher. As history shows, even at such an advanced stage of conflict, movements in both directions are entirely possible. Source: Bloomberg Finance LP, XTB
The price is retreating exactly to the moment of Friday's close. Key support is currently around $86-87 per barrel. If intensification occurs from the current point, the price could reach the 50-61.8 retracement zone. If Trump announces negotiations, the price will fall to $84-85 per barrel. Source: xStation5
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