Closure of the Strait of Hormuz Triggers a Surge in Geopolitical Risk Premium, but Expectations of Looser Supply May Cap Medium-Term Gains

Summary:

The renewed escalation of tensions between the United States and Iran, coupled with the announced closure of the Strait of Hormuz, has heightened concerns over potential disruptions to global energy supply chains. WTI crude oil opened sharply higher on Monday, briefly approaching the $75.00 mark. In the short term, geopolitical risk premiums have once again become a key pricing driver, suggesting that oil prices may retain further upside momentum. However, from a medium- to long-term perspective, continued production increases by OPEC+ and Saudi Arabia's proactive cuts to official selling prices indicate that the global crude market remains on a path toward looser supply conditions, potentially limiting the scope for sustained gains.

BUY WTI

EXP

TRADING

74.892

Entry Price

95.800

63.800

75.612 +4.197 +5.88%

0.0

Pips

Flat

63.800

Exit Price

74.892

Entry Price

95.800

Fundamentals

Over the weekend, tensions in the Middle East deteriorated sharply. The U.S. Central Command stated that the United States had carried out military strikes against Iranian targets on the evening of the 11th local time, marking the third U.S. military action against Iran within a week. Subsequently, Iran's Supreme Leader Mojtaba issued a strong statement on social media, vowing revenge for the late Supreme Leader Ayatollah Khamenei and those killed in the two recent wars.

Meanwhile, the naval branch of Iran's Islamic Revolutionary Guard Corps announced in the early hours of the 12th that the Strait of Hormuz would be closed immediately, with all vessels temporarily prohibited from passing through. As one of the world's most critical energy transportation routes, the Strait of Hormuz handles roughly 20% of global crude oil trade flows. Its closure quickly fueled risk aversion, prompting WTI crude to gap higher at Monday's open and test resistance near $75.00 during the Asian session.

From a supply perspective, the renewed U.S.-Iran conflict has increased the risk of disruptions to Middle Eastern high-sulfur crude and fuel oil supplies. Although refinery maintenance activities across the region are expected to gradually decline between July and August, theoretically allowing more exports to reach the market, significant uncertainty remains regarding the resumption of normal navigation through the Strait of Hormuz. As a result, it may take time before additional supply genuinely enters international markets.

In addition, Russia's energy supply outlook remains fragile. Continued attacks on Russian refineries and port facilities have constrained the recovery of high-sulfur fuel oil and crude exports, further intensifying short-term supply concerns.

However, from a medium- to long-term perspective, the crude market continues to face growing supply pressures. OPEC+ previously announced that seven major producers led by Saudi Arabia and Russia would further raise production targets by a combined 188,000 barrels per day. At the same time, Saudi Arabia cut the official selling price of its flagship crude grades to Asia for August deliveries, signaling intensifying competition for market share and increasing concerns over future oversupply and potential price wars.

It is worth noting that compared with previous Middle Eastern conflicts, the market's reaction to geopolitical risks has been considerably more restrained this time. Investors generally believe that unless the Strait of Hormuz remains closed for an extended period or the conflict expands to major production facilities, oil prices are unlikely to replicate the extreme rallies seen in the past. Therefore, the current geopolitical tensions are more likely to trigger a cyclical rebound rather than the beginning of a long-term bull market.

Closure of the Strait of Hormuz Triggers a Surge in Geopolitical Risk Premium, but Expectations of Looser Supply May Cap Medium-Term Gains_1

Technical Analysis

From a technical perspective, WTI's decisive break above the key resistance level of $74.87 during the Asian session confirms the inverse head-and-shoulders pattern previously formed on the hourly chart, while also invalidating earlier bearish expectations for a renewed decline below the $70.00 threshold.

Momentum indicators have also improved markedly. The MACD has moved back above the zero line, with expanding bullish histogram bars indicating strengthening short-term buying interest. Meanwhile, prices have successfully reclaimed major short-term moving averages, suggesting improving market sentiment.

However, the Relative Strength Index (RSI) remains near the 50 level and has yet to enter bullish territory, implying that the current advance is primarily driven by geopolitical risk repricing rather than a fully confirmed trend reversal.

In the near term, the 200-day moving average near $77.20 remains the key dividing line for the medium-term outlook. A decisive break and sustained move above this region would open the door for further upside.

On the downside, the psychological $70.00 level has now turned into an important support zone, while the area around $67.00 remains a critical medium-term structural floor. A renewed break below this region would suggest that geopolitical risk premiums are fading rapidly, prompting the market to refocus on global oversupply concerns and potentially triggering a new downward cycle.

Trade Recommendation

Trading Direction: Buy

Entry Price: 70.00

Target Price: 95.80

Stop Loss: 63.80

Valid Until: August 12, 2026, 23:55

Support Levels: 71.61, 70.25, 69.04

Resistance Levels: 74.92, 75.70, 77.87

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