Buying Brent crude with $118.40 target amid rising physical deficit

Brent prices pulled back to $110 per barrel after Donald Trump delayed major strikes on Iran. The announcement triggered profit-taking following several consecutive sessions of gains. However, the situation in the physical market remains unchanged, making the current decline a temporary thing.

The Strait of Hormuz has been blocked for twelve weeks. Over the first two months of the year, global commercial oil inventories lost 246 million barrels—an all-time record. According to the International Energy Agency (IEA), remaining stocks would only be enough for a few weeks. The United States is actively working on the issue, but its strategic reserves have already fallen to their lowest levels since July 2024. Extending sanctions relief on Russian fuel merely redistributes limited volumes without boosting the overall supply.

The demand picture is also bleak. In April, China significantly cut oil refining volumes, hitting a minimum not seen since 2022. Such a decision was driven by elevated energy prices and weak domestic consumption. Of course, this factor takes some edge off the supply deficit, but it doesn’t solve the problem. Once deliveries fall to the current limited capacity, fuel shortages will become evident. What’s worse, even if the Strait of Hormuz were to reopen immediately, supply chains wouldn’t normalize until August due to logistical hurdles. Besides, the process of replenishing inventories could stretch into 2027.

On the technical front, the Brent market appears to be recovering from its May 6 plunge. The Average Directional Index (ADX) is flying high, confirming the trend. The orientation of its lines (+DI above -DI) points to a local victory for buyers. At the same time, the Chaikin Oscillator is declining, signaling a bearish price divergence—a sign that the current pullback could lack conviction.

Take into account the trading plan presented below:

Buy Brent crude at the current price ($111). Place Take profit at $118.40 and Stop loss at $107.50.

The forecast is valid from May 19 till May 26, 2026.