Hormuz Disruption Keeps Brent Elevated and Stagflation Fears Alive

Brent crude oil is trading near its yearly highs, and the Brent WTI spread is pressing against resistance that has held for about 11 years. Disruption across the Strait of Hormuz has kept a geopolitical premium in Brent crude oil, and that premium is feeding steep inflationary pressure across major economies. Monthly RSI on the spread is at overbought levels last seen in 2011, a sign of how stretched the energy market has become. What happens to Brent next now matters well beyond the oil patch.

Razan Hilal, CMT, StoneX Media Market Analyst for Global Macro, brings seven years of market analysis across forex, stocks, commodities and equity indices. A Chartered Market Technician based in Dubai, she specializes in technical and intermarket analysis, tracking how moves in crude oil carry into currencies, equities and inflation-sensitive markets.

Key Themes

• The Brent WTI spread is testing resistance that has held for about 11 years.
• Monthly RSI on the spread sits at overbought levels last seen in 2011.
• Strait of Hormuz disruption keeps steep inflationary pressure on major economies.

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Brent Breakout at Yearly Highs Deepens Stagflation Risk for Major Economies

Brent crude oil has broken above its September high and a key Fibonacci extension of its broader advance on the weekly chart, leaving yearly highs as the next test. That zone has acted as both support and resistance for Brent through most of the year. Hilal sets out the upside case directly, "Should that resistance turn into a solid support, we may be looking at a long-term bullish outlook for the Brent crude oil chart, which may possibly signal further distress for major economies in terms of stagflation risk." A sustained Brent breakout would keep the inflation cost of Strait of Hormuz disruption in place rather than easing it. Notably, weekly RSI on Brent is already approaching overbought conditions, the counterweight traders are watching.

Hormuz De-escalation Path Offers Brent Crude Relief From Inflation Pressure

Brent crude oil's next move runs through politics as much as through the chart. With Israel's elections and the U.S. midterm elections approaching, Hilal points to "a potential change with respect to the geopolitical outlook or oil premiums" as the swing factor. Each earlier test of the Brent WTI spread's 11-year resistance coincided with a reversal in Brent, and a sustained pullback would bring the Fibonacci retracement zones of Brent's most recent advance into focus. Further escalation in the geopolitical conflict, by contrast, would line up with a breakout above yearly highs. According to Hilal, "another reversal may possibly be in line with a potential negotiation or de-escalation path towards year end, possibly relieving markets from the steep inflationary pressures" created by the disruption across the Strait of Hormuz.

--- Written by Frédéric Guétin, StoneX Media Producer

--- Expert: Razan Hilal, StoneX Media Market Analyst