Brent surges to $106 per barrel as hostilities in the Middle East escalate further

Brent oil price surged over $3 on Thursday and hit levels close to $106, last traded on May 22 after Wednesday’s break and close above psychological $100 barrier generated strong bullish signal.

Strong escalation in the Middle East which resulted in US attacks on Iranian tankers and Iran’s response targeting US military bases and ships, boosted fears about global oil supply which remains strongly impacted by almost total closure of key supply route through Strait of Hormuz, while threats that Yemen’s Houthis would close another strategic point – Bab el-Mandeb strait, sent strong shockwaves through the markets and further lifted oil prices.

Market participants remain deeply concerned about deteriorating geopolitical situation as oil prices rose over 30% from early August low, with sustained break above $100 per barrel adding to strong negative signals and threatening of uncontrolled price rise, which would increase inflationary pressure.

Technical studies on daily chart remain firmly bullish, with break of $100 and $101.97 (former peak of July 23) generating additional bullish signals.

On the other hand, overbought conditions may prompt limited profit taking, as traders won’t risk much in firmly bullish market, but positioning for fresh push higher.

Broken $101.97 barrier reverted to support which should contain potential dips and guard $100 as lower breakpoint.

The price is currently riding on the third wave of five-wave cycle from $78.10 (Aug 5 low) and eyes next target at 107.71 (Fibo 138.2% expansion).

Res: 105.83; 107.71; 108.42; 110.00
Sup: 103.45; 101.97; 100.80; 100.00