Oil surges after US-Iran strikes; stalemate limits losses

Fundamental overview

Oil prices opened with a gap higher on Monday after the US launched strikes on Iran's Larak Island on Sunday, the first such action in more than a month, following reports that IRGC forces were readying rocket launches with sea mines into the Strait of Hormuz.

In retaliation, Iran launched ballistic and anti-ship missiles from several provinces, hitting two US bases in Jordan: King Hussein and Al Azraq. According to a US source, the majority of the missiles were intercepted and caused no significant damage.

The geopolitical risk premium has edged up, pushing oil prices higher, but the situation appears to be a routine skirmish that the market may soon overlook.

There is little appetite for additional military action, with the US now focusing on economic warfare to pressure Iran into a negotiation. This factor should cap the downside for oil, though price action is likely to stay rangebound as ongoing diplomatic efforts prompt selloffs.

Crude oil technical analysis – daily timeframe

On the daily chart, crude oil is once again approaching the 86.90 resistance level. This is where sellers are expected to enter with a defined risk above resistance, aiming for a decline back to the 78.00 support. Buyers, meanwhile, will seek a breakout to ramp up bullish bets toward the 93.50 level.

Crude oil technical analysis – 4 hour timeframe

On the 4-hour chart, a minor upward trendline defines the bullish momentum. A pullback to fill the gap could see buyers relying on the trendline with a defined risk below, aiming to push toward new highs. Sellers, conversely, will look for a break below the trendline to enter short positions targeting the 78.00 support.

Crude oil technical analysis – 1 hour timeframe

On the 1-hour chart, there is little additional to note from a risk management standpoint. Buyers have a better risk-reward setup near the trendline, while sellers will likely wait for a move to the 86.90 resistance or a break below the trendline. The red lines indicate today's average daily range.

Upcoming catalysts

Tomorrow brings the US ISM Manufacturing PMI and Job Openings data. Wednesday features the US ADP report. Thursday includes Fed's Waller, US Jobless Claims, and the US ISM Services PMI. Friday wraps up the week with the US NFP report. US-Iran developments will remain the key driver of price action.