Oil's rally through key resistance signals deeper trouble ahead

The $100 mark in Brent crude has been breached today, representing a major psychological threshold, though West Texas Intermediate has not yet followed suit. From a technical perspective, the $93.50 level that oil approached yesterday carries greater significance. Initially, crude appeared poised to face resistance at that point, but it has since pushed decisively higher.

WTI currently stands at $95.81 per barrel, a gain of $2.85 and a new session high. That level surpasses the July peak and establishes a clear pattern of ascending troughs starting from the early-July low tied to the MOU peace deal.

On the fundamental side, the situation is creating a genuine challenge for Trump, and the momentum is now decelerating. Reports of potential peace agreements are being consistently dismissed by traders, as it becomes evident that both parties are digging in.

For Iran, the conflict represents an existential threat. Speculation about a potential regime collapse persists, though its likelihood remains uncertain; however, Iran has demonstrated its capacity to restrict flows through the Strait of Hormuz. Even if the US merely blocks Iranian oil exports, that alone would meaningfully reduce global supply, and the impact is already being felt.

On the American side, the challenge lies in anticipating Trump's next move, a near-impossible task. Some recent signals from the administration suggest that higher oil prices are being framed as the cost of preventing a nuclear-armed Iran, or alternatively blamed on the Russia-Ukraine situation — a narrative that may prove difficult to sell ahead of the midterm elections.

The rising price of gasoline is adding further fuel to the fire. Diesel has already reached record levels, and gasoline is now accelerating upward, including a new record over the Labor Day weekend.

RBOB wholesale gasoline (October) is also climbing.

At some point, a breaking point must arrive, and a sharp spike now could actually be beneficial by intensifying the push for peace. The danger is that Trump's pride grows — especially after the midterms — leading him to ignore the oil surge.

The broader risk is that energy-driven inflation seeps into overall inflation expectations. Sovereign yields are already climbing across the board, with US 10-year yields approaching 5%. In Japan, 30-year yields are just 2 basis points away from 4%. Eventually, this dynamic will ripple back into equity markets.

Regrettably, it appears we remain far from that breaking point.