Brent Could Briefly Hit $88.00

Brent crude prices are climbing by 2.8% this week, reaching $82.08 per barrel. Notably, prices have broken through the $78.00-80.00 resistance level and retested it successfully, suggesting a potential move toward the next resistance at $88.00-90.00 per barrel—an additional 8.0% upside. This surge is driven by uncertainty surrounding new U.S. sanctions on Russia's oil sector, which significantly disrupt global oil logistics.

Before these sanctions, Brent prices were consolidating between $76.00-78.00 with a downside bias. However, the sanctions, announced on January 10, target Russia’s Sovcomflot and over 180 of its 600 oil tankers, including a significant portion of its "dark fleet." Approximately 60 tankers are now anchored in Asia, unable to offload their cargo due to non-compliance from China and India with these sanctions. This disruption has caused shipping premiums for Middle Eastern oil to surge to two-year highs as these countries seek alternative suppliers.

The full impact of these sanctions is still unclear. Some speculate that supply disruptions will be temporary, with the new U.S. administration potentially lifting sanctions or Russia finding ways to bypass them. This resolution could take 2-3 months.

Geopolitical developments, such as a ceasefire agreement between Israel and Hamas to release hostages, have yet to influence oil prices significantly. Traders appear cautious, awaiting concrete developments.

Large investors are leaning toward an upside scenario. The United States Oil Fund (USO) reported net inflows of $109 million on Monday, compared to outflows of $84.9 million the previous week. However, U.S. oil inventories continue to decline, down for the eighth consecutive week with a 1.9-million-barrel draw reported last week, the longest stretch of declines since 2021.

Given the current environment, both long and short positions carry significant risks. It may be prudent to wait for prices to dip below $78.00-80.00 before considering long positions or for prices to rise to $88.00-90.00 to evaluate short opportunities. This approach allows for better alignment with market dynamics and reduced exposure to volatility.