Yemen’s Iran-backed Houthis have completed the takeover of Bab el-Mandeb Strait after capturing strategic points in the Red Sea, according to the AFP. Bab el-Mandeb connects the Red Sea with the Gulf of Aden and provides a key maritime route between the Indian Ocean, the Suez Canal and Europe. Around 10% of global trade passes through this waterway.
That leaves global energy flows facing pressure from both ends of the Arabian Peninsula. Iran’s disruption of Hormuz threatens the main route out of the Persian Gulf, while Houthi control of Bab el-Mandeb creates another bottleneck for shipments moving through the Red Sea and toward the Suez Canal.
For the optimists, this increases Iran’s leverage significantly and could force the US out of the war which would bring oil prices to pre-war levels. For the pessimists, Trump might not care much about it and keep waiting, hoping that the sanctions and the attacks force Iran to surrender first.
The current situation is very dangerous for markets and the global economy. Traders got used to Trump’s TACOs and they’ve always worked, even if just in the short-term. I feel like the market might start sensing some kind of resolution as soon as Trump backtracks on his midterm comments. I think that would be enough for a pullback as positioning became quite stretched in recent weeks. With the GCC meeting on Monday and potentially a Fed rate hike on Wednesday, I would keep a close eye on de-escalatory headlines and any Trump comment.
WTI CRUDE OIL – DAILY TIMEFRAME
The technical picture is promising. We can see on the daily chart that the price got rejected around the upper-bound of the channel, near the key 105.00 swing level. This might be a mix of profit-taking and sellers leaning on key levels to position for a de-escalation, targeting the lower-bound of the channel. If the US-Iran story doesn’t change, though, we will likely see oil resuming the uptrend with dip-buyers stepping in around key levels on lower timeframes.
WTI CRUDE OIL – 1 HOUR TIMEFRAME
On the 1 hour chart, we have minor trendlines that could offer traders some opportunities. The buyers will look for a break above the minor downward trendline or a pullback into the major upward one to pile in for new highs. The sellers, on the other hand, will look for short opportunities around the minor downward trendline and on the break below the major one.
This article was written by Giuseppe Dellamotta at investinglive.com.