WTI and Brent Oil Surge Amid Geopolitical Risks – What’s Driving Prices Above $70?

Oil Prices Surge Amid Geopolitical Tensions and Tariff Threats – WTI and Brent Outlook

Oil prices soared on Monday, with WTI (CL=F) hitting $71.20 per barrel and Brent (BZ=F) climbing to $74.71, as escalating geopolitical tensions between the U.S., Russia, and Iran fueled fears of a potential disruption in global oil supplies. The threat of tariffs on Russian oil and military action against Iran drove traders to seek refuge in oil, pushing prices up by over 2%. This marks a significant rally, with WTI advancing by 2.65% and Brent up 1.47%.

Geopolitical Tensions and Oil Price Surge

The U.S. president’s aggressive stance on Russia’s oil exports and Iran’s nuclear program has injected substantial volatility into the oil markets. On Sunday, President Trump warned of imposing secondary tariffs on Russian oil if Russia fails to reach a ceasefire agreement with Ukraine. The Russian-Ukrainian conflict, compounded by the Iran nuclear deal stalemate, sent shockwaves through global markets, triggering oil prices to climb significantly. The potential for military conflict, particularly with Iran, has further strained oil supply expectations, with both WTI and Brent marking multi-week highs. As a result, Brent’s premium over WTI has narrowed to its lowest level in over six months, as the price spread dropped to just $3.26 per barrel, down from $4 last month.

Impact of Tariff Threats on Oil Supply and Demand

President Trump’s threat to implement secondary tariffs on Russian oil exports could exacerbate the supply risks in the oil market. The ramifications of such tariffs are still uncertain, but market participants are closely monitoring the evolving situation. While some analysts believe that the U.S. might not follow through with the full extent of these tariff threats, the increasing geopolitical instability and trade disputes are certainly putting pressure on oil prices.

On top of this, Trump’s rhetoric about military action against Iran is not only escalating tensions in the Middle East but also further tightening global oil supplies. Iran’s oil exports have been hit by U.S. sanctions, and the possibility of additional sanctions or even military action raises the specter of further supply disruptions. This creates a highly volatile environment for oil prices, with any escalation in tensions likely to drive further price increases.

Oil Price Forecasts Amid Supply Concerns and Economic Slowdown Risks

Looking ahead, analysts expect WTI to average $68 per barrel over the next six months, reflecting concerns about economic growth, particularly in the U.S., and the possibility of an ongoing trade war. In the longer term, executives surveyed in the Dallas Fed Energy Survey predict a modest increase in WTI, forecasting $70 per barrel for the year and $74 for two years. However, concerns about OPEC+ production cuts, which are expected to ease in April, combined with rising global production from countries like the U.S. and Brazil, could limit the upside potential for oil prices.

WTI and Brent: Technical Analysis and Market Dynamics

From a technical standpoint, WTI and Brent are both facing critical support and resistance levels. For WTI, the key support has remained around $65, a level that has held steady for the past three years. Analysts are optimistic that WTI can break above its 50-day EMA, signaling a potential continuation of the bullish trend, though short-term pullbacks could occur. Brent, similarly, is eyeing the $74 level as a key resistance point, with a successful breakout possibly leading to a move towards $75.50 and the 200-day EMA at $76.

The question remains whether these geopolitical tensions will push prices beyond these levels or if the oil market will experience a consolidation phase before a more sustained breakout. Analysts suggest that geopolitical risks, especially the secondary tariff threat and the Iran situation, continue to provide strong bullish momentum, though concerns about the global economy and OPEC+ supply increases could cap price rises.

Demand-Supply Imbalances and Energy Firm Sentiment

The latest developments indicate a precarious balance between supply disruptions and demand concerns. On the demand side, China’s manufacturing data showed a significant expansion in March, bolstering the outlook for oil demand. Meanwhile, the ongoing uncertainties in the global economy, particularly U.S. tariff policies, have left traders cautious.

OPEC+ production decisions will play a significant role in shaping oil prices in the coming months. While OPEC+ plans to ease production cuts from April 1, the increase in non-OPEC supply—led by the U.S., Brazil, and Guyana—could offset some of the price gains. Additionally, analysts from Goldman Sachs have warned of the risks of further tariff escalation, which could weigh on oil demand and push prices lower in the medium term.

Oil Industry Activity and Long-Term Market Sentiment

Despite short-term volatility, the oil market remains underpinned by strong institutional demand and supply-side risks. The Dallas Fed Energy Survey highlights a mixed outlook, with expectations for WTI to remain in the $65-$75 range in the near term. However, executives are bullish on long-term prospects, projecting $80 for WTI by 2025, largely driven by geopolitical uncertainty, a potential economic recovery, and OPEC+’s role in managing global oil production.

In the broader picture, China’s state energy company CNOOC has announced a significant oil discovery in the South China Sea, estimated at 100 million tons of crude oil, signaling a long-term commitment to increasing domestic production. This development highlights the growing competition for oil reserves in deepwater and ultra-deepwater fields, which have become increasingly crucial as conventional oil fields decline.

The Path Ahead for Oil Prices

With geopolitical factors such as the ongoing Russia-Ukraine conflict, Iran nuclear negotiations, and potential U.S. tariffs influencing market sentiment, WTI and Brent are likely to remain volatile. As global demand recovers and supply risks mount, WTI could see its price hover around $70, with a potential to break higher if geopolitical risks escalate further. Conversely, if diplomatic resolutions are reached or trade tensions ease, a pullback could be on the horizon, with $65 acting as the key support level. Investors should stay vigilant, as WTI and Brent could experience sharp swings based on political developments.

That's TradingNEWS