Oil Price Rebound May Be Nearing Its End, Market Faces Risk of a Sharp Correction

Summary:

The escalation of tensions in the Middle East has driven a rapid surge in oil prices, with WTI crude briefly breaking above $92 per barrel. Meanwhile, U.S. Treasury yields climbed to yearly highs as markets reassessed the Federal Reserve’s policy outlook. However, from a market structure perspective, this rally appears to be more of a technical recovery following an oversold decline rather than a reversal of the long-term supply-demand trend. As geopolitical risk premiums gradually fade, upward momentum in oil prices may weaken, leaving the market vulnerable to a significant pullback.

SELL WTI

EXP

TRADING

88.460

Entry Price

68.000

110.000

89.225 -1.833 -2.01%

0.0

Pips

Flat

68.000

Exit Price

88.460

Entry Price

110.000

Fundamental

The recent deterioration in the Middle East situation has become the primary driver behind the rise in oil prices. The Houthi movement in Yemen attacked Saudi oil tankers near the Bab el-Mandeb Strait, reigniting concerns over the security of crude transportation routes and increasing uncertainty surrounding global energy supplies.

Supported by safe-haven demand and supply disruption concerns, WTI crude prices surged rapidly, reaching a high of $92.46 per barrel. The rise in oil prices has not only boosted inflation expectations but has also placed additional pressure on the U.S. Treasury market.

U.S. Treasury yields have continued to climb recently. The 2-year Treasury yield, which is highly sensitive to Federal Reserve policy expectations, rose by around 4 basis points on Thursday to approximately 4.34%, marking its highest level since early 2025. Meanwhile, the 10-year Treasury yield also reached a new yearly high, while the 30-year Treasury yield climbed to 5.19%, approaching levels not seen since 2007.

As rising energy prices renewed inflation concerns, investors have begun reassessing the Fed’s future policy path. Some market participants believe that if inflationary pressures intensify, the Federal Reserve may maintain a higher-for-longer interest rate environment or even reconsider further tightening.

However, from a longer-term perspective, the current oil price rally is primarily driven by geopolitical risk rather than a fundamental shift in global supply and demand dynamics. As the market gradually absorbs the Middle East risk premium, further upside potential for oil prices may become increasingly limited.

Oil Price Rebound May Be Nearing Its End, Market Faces Risk of a Sharp Correction_1

Technical Analysis

WTI crude oil staged a strong rebound after previously hitting a low near $68.50, rising sharply for three consecutive trading sessions and reaching a high of $92.46. However, prices pulled back on Friday, suggesting that short-term bullish momentum is beginning to weaken.

From a technical perspective, the current rally appears more like an oversold recovery rather than the beginning of a new bullish cycle. Although the escalation of Middle East tensions has acted as a key catalyst behind the breakout, it has not fundamentally changed the broader corrective structure that has been in place.

If geopolitical risks continue to intensify, WTI could still challenge the resistance zone around $95.00 and potentially move toward the psychological $100 level. However, if risk sentiment improves and markets return their focus to supply-demand fundamentals, the recent gains may prove difficult to sustain.

Overall, we believe the current oil price surge represents a technical rebound rather than the start of a new long-term uptrend. As the rebound progresses, bullish momentum may quickly fade, potentially pushing oil prices back into a corrective phase and toward levels near the origin of this rally.

Trading Strategy

Direction: Sell

Entry Price: 90.65

Target Price: 68.00

Stop Loss: 110.00

Valid Until: August 23, 2026, 23:55

Support Levels: 87.58, 84.74, 80.66

Resistance Levels: 91.56, 92.46, 93.49

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