To The Moon

On Last Friday, Israeli air forces launched a large-scale airstrike on multiple Iranian facilities related to nuclear and military operations, in an operation dubbed “Operation Lion’s Strength.” The attack reignited market risk aversion, sending gold prices soaring by $60 to their highest level since April 16. Crude oil futures surged 14% in a single day, up 16.7% since the beginning of June. Oil futures had already broken key resistance levels earlier that week (Brent at $68.5, WTI at $65), and Friday’s sudden escalation further accelerated the rally, making crude one of the most eye-catching assets in global markets. So with both technical and fundamental forces supporting the trend, how much further can crude prices rise?

War and Disappointing Supply Growth Support Oil Prices in the Short Term

The most fundamental driver of oil prices remains supply and demand. When a major oil-producing country enters conflict, markets fear that production facilities could be damaged, leading to reduced output. When supply falls below demand, prices naturally rise.

For example, when the Russia-Ukraine war broke out, fears of reduced production pushed WTI crude briefly to $130 per barrel. By contrast, recent India-Pakistan tensions had no such impact. According to the IEA, Iran — a key OPEC member — produced 3.36 million barrels per day (mb/d) in March and 3.43 mb/d in April. If Iranian oil facilities are hit, it could seriously impact global supply.

Even more concerning would be Iran retaliating by blocking the Strait of Hormuz. This narrow strait between the Persian Gulf and the Gulf of Oman handles around 20 million barrels per day, or one-fifth of global oil consumption. Most exports from Saudi Arabia, UAE, Kuwait, Iraq, and Iran pass through this route, with no viable alternatives. Historically, no country has dared to block it outright — but if Iran sees itself facing an existential threat, there’s no telling how it might react.

Oil Market Report -May 2025，IEA

OPEC+ Underperformance Raises Supply Concerns

Meanwhile, OPEC+’s actual production growth has fallen short of expectations. The group announced plans to increase output by 414,000 barrels/day from July — part of a broader goal to restore 2.2 mb/d of supply. However, markets see this as insufficient, especially since OPEC+ signaled it would proceed cautiously.

Morgan Stanley data shows that OPEC+ only met 60% of its planned increase during May and June, with production bottlenecks in some member states restricting supply recovery.

Call Options Surge Amid Panic Buying

Following Friday’s Israeli airstrike, panic buying of crude oil call options erupted during the Asian trading session. Call premiums surged to their highest level since the start of the Russia-Ukraine war in 2022. Nearly 38 million barrels worth of call options were added in the past week at various strike prices.

Oil Market Long Numb to War Risk Confronts Weekend of Worry, Bloomberg

From a technical perspective, WTI has decisively broken the key resistance-turned-support level at $65, opening the door toward $70 and beyond. The breach of the early April swing high has reinvigorated bullish sentiment, with some traders now eyeing a retest of the year-to-date high around $81. Oil-related equities also responded. Occidental Petroleum $Occidental(OXY)$ gained 3.78% on Monday.

WTI Crude Oil Price，TradingView

Outlook and Risks

From a long-term fundamental view, the outlook for oil prices remains under pressure. Despite short-term tailwinds, most institutions believe medium- to long-term dynamics remain bearish.

On the supply side:

• OPEC+ has committed to fully restoring 2.2 mb/d of capacity by September.

• U.S. shale activity has picked up — rig counts have increased for 12 consecutive weeks, and Permian Basin output is projected to reach a record high in Q3.

• SEB (Skandinaviska Enskilda Banken) notes that Saudi Arabia is engaging in a "mild price war", gradually increasing output to regain market share.

On the demand side, the IEA’s May report projected a slowdown:

• Global oil demand is expected to grow by just 650,000 bpd in Q1 2025, down from 990,000 bpd earlier.

• Full-year growth estimates are 740,000 bpd for 2025 and 760,000 bpd for 2026.

• High fuel prices are already suppressing demand — with U.S. gasoline prices exceeding $5/gallon, driving activity fell 3.2% month-over-month — the first seasonal decline since the pandemic.

Historically, price spikes driven by geopolitical risks tend to be short-lived. This Israel-Iran conflict may be no exception. Once market panic fades, oil prices often retrace the “war premium.”

During the Russia-Ukraine conflict, crude prices had fully retraced their gains by late 2022. Given the Israel-Iran situation is smaller in scale, the impact window is likely shorter. If both sides avoid targeting oil infrastructure and Iran opts for diplomacy, prices could normalize even faster.

However, if Iran retaliates aggressively — especially targeting Israel’s or Saudi Arabia’s oil assets — or if direct attacks on production facilities occur, bulls could have enough momentum to challenge the year’s high.

Invesight Viewpoint

The current oil price rally is fueled by both technical breakouts and short-term geopolitical concerns. While the upside momentum remains strong, investors must monitor how the Israel-Iran conflict evolves.

• If Iran retaliates or threatens key infrastructure like the Strait of Hormuz, oil could surge further.

• If Iran seeks de-escalation, the “war premium” may fade quickly.

• Meanwhile, OPEC+ and U.S. supply growth will act as structural dampeners to any long-term rally.

As long as WTI holds above the $65 support level (equivalent to $68.5 for Brent), prices are expected to remain in a wide trading range through the second half of the year — but volatility will likely persist.