During last week's livestream, I highlighted the significant opportunities present in the crude oil market. The very next morning, news broke that Israel had launched a fierce attack on Iran. This led to the largest single-day price swing in crude oil since the Russia-Ukraine conflict, with intraday prices soaring by more than 12% and triggering substantial volatility in the oil market.
Those who have followed my livestreams and articles know that I have previously predicted a major price low for crude oil this year. From that low, I forecasted a potential doubling in oil prices. Up until now, the exact catalyst for such a rally had not been clear, but the eruption of the Israel-Iran conflict has now given new momentum to oil price increases. For more details, you can revisit last week’s livestream.
Driven by the news of this conflict, oil prices are expected to react in tandem with the escalation or de-escalation of tensions. It is virtually certain that, as long as actual crude oil production is not disrupted, any gains in price will likely be matched by similar declines. This means that the current rally is speculative in nature; large daily swings in both directions are to be expected. Please be prepared for this high volatility.
1. Historical Parallels in Oil Price Movements
Conflicts in the Middle East frequently impact oil prices. The intensity of the conflict and the associated expectations about disruptions to crude production will directly shape price trends. The most relevant historical precedent for the current situation is the 1990-1991 Gulf War. Back then, Iraq’s invasion of Kuwait led to a reduction of Iraqi crude oil production by 3 million barrels per day—about 5% of global output at that time. As a result, oil prices doubled from $18 to $36 per barrel in just three months. Only after OPEC dramatically increased production and the US military intervened did this price surge subside.
The current oil price situation is similar to 1990, with price spikes driven by conflict and the potential for escalation. For example, if Iran were to blockade the Strait of Hormuz—which facilitates 20% of the world’s oil shipments—there would be strong justification for a further spike in oil prices. If the situation does not worsen, prices may stabilize, pending further developments. This will likely cause a rollercoaster ride for oil prices. For non-short-term investors, I suggest using risk-controllable options instruments for speculation to avoid major swings in account balances.
2. Key Technical Levels in the Current Rally
The lowest price for oil in May, $54 per barrel, serves as the baseline for this round’s rally. That this low held even after OPEC+ and Saudi Arabia announced continued production increases suggests that war-related factors have had limited impact around that price point. Even if tensions ease, crude prices should find support near this level. Investors can use this price to assess risk—those pursuing long positions should consider if their accounts can withstand a drop to this support.
As for the upper end, historical data on similar surges show that price rallies often result in a doubling from the low. Using $54 as the base, the next peak should break $100 per barrel, which would also provide a strong rationale for OPEC+ and Saudi Arabia to ramp up production. Therefore, regardless of whether Iranian oil reaches the market, there will still be opportunities for short selling. However, it is best to approach these opportunities as speculative trades.
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