Oil set to drop without further escalation of Middle East tensions

Brent prices approached the $79 per barrel threshold this week for the first time since January. However, crude buyers faced strong resistance from bears, triggering a corrective pullback. The 25% June rally should now give way to at least a minor retreat, with the nearest target being the 23.6% Fibonacci level at 75. Unless the news flow is fueled by further escalation in the Middle East, the oil market could face a strong wave of selling pressure.

Despite multiple forecasts predicting a sharp rise in crude prices due to potential Iranian supply disruptions, no actual shortages have materialized so far. Moreover, vessel-tracking data from TankerTrackers.com shows Iran's exports surged 44% last week to 2.33 million barrels per day. Satellite imagery also confirms no significant operational disruptions in Iran's oil industry.

Even if Middle East exports are indeed affected, the largest crude oil importer has prepared reasonably well for potential challenges. Bloomberg analysts report China's oil stockpiles have now hit a record 1.18 billion barrels. Sluggish operations at domestic refineries, running at their lowest capacity in three months, provide additional cushion against potential shortages.

Furthermore, OPEC+ nations have clearly signaled their readiness to accelerate the phase-out of oil production cuts if needed. This was jointly confirmed yesterday by Russia's Deputy Prime Minister Alexander Novak, Saudi Energy Minister Prince Abdulaziz bin Salman, and OPEC Secretary General Haitham Al Ghais. Beyond their pre-approved output increases, the cartel members possess sufficient spare capacity to offset Iran's entire export volume. This will effectively cap any potential rallies in crude prices.

The RSI and Stochastic technical indicators on Brent crude's daily chart have entered overbought territory, signaling high risks of a downward price correction. The first target for such a pullback could be the 75 level.

Consider the following trading strategy:

Sell Brent in the 76.5–77.5 range. Take profit – 75. Stop loss – 79.