• Oil prices surge sharply at the start of the week as escalating tensions in the Middle East disrupt global supply routes.
• Concerns grow over the Strait of Hormuz after several Gulf producers reduce output and tanker traffic declines.
• Prices retreat from earlier highs after reports that G7 countries and the IEA may release emergency reserves.

West Texas Intermediate (WTI) US Oil surges on Monday, trading around $100.70 per barrel at the time of writing, up 13.70% on the day after briefly jumping above $110 during the Asian session, its highest level since mid-2022.

The sharp rally in Oil prices comes as geopolitical tensions in the Middle East intensify, raising fears of a significant disruption to global Crude Oil supplies. Over the weekend, the United States (US) and Israel reportedly carried out strikes on Iranian facilities, while Iran responded with attacks and military activity across the region, increasing the risk of a broader regional conflict.

A key factor behind the surge in Oil prices is the disruption to shipping through the Strait of Hormuz, one of the world’s most critical energy transit routes through which roughly 20% of global Oil flows. Concerns about security in the area have discouraged tanker traffic, forcing several Gulf producers to cut output as storage capacity fills up.

The United Arab Emirates (UAE), Kuwait and Iraq have already started reducing production due to the difficulty of exporting Crude. Market participants are increasingly worried that a prolonged disruption could remove a significant portion of global supply from the market.

The geopolitical situation continues to evolve rapidly. Iran has appointed Mojtaba Khamenei, son of former Supreme Leader Ali Khamenei, as the country’s new Supreme Leader, a move that has drawn criticism from US President Donald Trump. Meanwhile, the Israeli military reported new strikes on targets in central Iran and Hezbollah infrastructure in Beirut, while Iranian drone activity has been reported near several regional energy facilities.

Despite the strong rally, Oil prices have pulled back from their intraday peaks after reports that the International Energy Agency (IEA) is discussing a coordinated release of emergency reserves among G7 countries to stabilize the market. Such measures are typically used to offset sudden supply shocks and prevent extreme price spikes.

Authorities in several countries are already preparing for this possibility. Japan’s Ministry of Economy, Trade and Industry has reportedly instructed domestic Oil storage facilities to prepare for a potential release as the crisis threatens supply flows from the Middle East.

Still, analysts warn that emergency reserves could only provide temporary relief if the disruption to shipments through the Strait of Hormuz persists. Danske Bank notes that the current surge in Oil prices resembles the shock seen after Russia’s invasion of Ukraine in 2022 and warns that prices could climb further if the conflict continues to escalate.

WTI Technical Analysis

Near-term bias is bullish as price accelerates away from the 100-week Simple Moving Average (SMA) clustered around $68.50, signaling a transition from a long consolidation to an impulsive advance. The move has also pushed decisively above the 23.6% Fibonacci retracement at $71.99 and the 38.2% level at $82.47, both measured from the $55.06 low to the $126.82 high, underscoring strong upside follow-through. Weekly RSI at 84.55 stands in overbought territory, indicating intense buying pressure but also warning that momentum is stretched after the recent breakout.

Immediate support emerges at the 38.2% retracement at $82.47, ahead of secondary support at the 23.6% level at $71.99, where prior Fibonacci resistance now underpins the broader uptrend. Deeper downside protection sits well below at the 100-week SMA near $68.50, which reinforces the medium-term floor. On the topside, initial resistance is seen at the 78.6% level at $111.47. As long as price holds above $82.47, pullbacks would keep the bullish structure intact despite the overbought momentum backdrop.

(The technical analysis of this story was written with the help of an AI tool.)