WTI is sharply recovering part of last week’s correction on August 31 and has climbed toward resistance around $87.5 per barrel following renewed escalation between the U.S. and Iran. During the current session, prices rose to around $87.4, meaning the market has almost returned to last week’s highs near $88.
After falling toward $81-82, a fairly confident recovery developed, while the renewed deterioration in the situation around the Strait of Hormuz is once again forcing market participants to price in a higher geopolitical premium.
U.S. inventory data strengthen near-term support
The latest U.S. inventory data also remain supportive. For the week ended August 21, commercial crude inventories increased by only 95,000 barrels to 428.91 million, while gasoline inventories fell by 2.5 million barrels and distillate stocks declined by 2.2 million. Refinery utilization rose to 97.4%, so the domestic petroleum products market remains relatively tight even with production at around 13.8 million bpd. Combined with renewed geopolitical risk, this makes the fundamental backdrop noticeably more favorable for buyers than it was at the end of last week.
Physical supply remains vulnerable to Hormuz disruption
In the medium term, the market also remains sensitive to any reduction in physical supply. The IEA estimates the third-quarter deficit at around 1.8 million bpd, while observed global inventories have fallen by approximately 410 million barrels since the start of the conflict. Therefore, if the exchange of strikes between the U.S. and Iran leads not only to higher risks but also to an actual reduction in exports through Hormuz, WTI could move fairly quickly from recovery into a new upward impulse.
$87.5 becomes nearest breakout level
Nearest resistance is now located around $87.5. A confident breakout above this level would allow for a move toward $88.50-89, after which the market could again turn its attention to the $90 area. As long as the breakout does not occur, profit-taking remains possible after the rapid rise. Initial support is located around $86.5, while a more important zone is around $85.5-85. A return below $85, as I stated in the article WTI consolidates after weekly decline as Hormuz flows recover, would noticeably weaken the current bullish momentum.
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