Back to normal pricing for the oil market?

At Tricio we look at charts in order to gauge investor sentiment and behaviour. The potential extension of the ceasefire in the US war in Iran has seen oil prices sink this week and this may continue.  

Recent events

Oil traders (commercial/speculators etc.) have had a difficult few quarters. Prices started to rise at the start of 2026 as sabre rattling from the US and then the movement of naval assets to the region unsettled oil markets. The start of the war on 28^th February saw prices rise sharply. We posted a blog in early March where we argued that upside risk was likely to build if the conflict spread to other countries, infrastructure, and lasted more than a few days.

Our core view though was – and still is – that high prices cure high prices in commodity markets and that Gulf Wars 1 and 2 and the Russian war in Ukraine had trained the market to look for prices to ease after spikes higher. The market agreed with us and prices (front month) approached $120/bbl. by mid-March. Since then traders have been whipsawed by conflicting headlines as the conflict ebbed and flowed while US President Trump continued to talk about the war ending soon, or escalating further if necessary. But prices have not set new highs, and are collapsing so far this week.

The headlines over the weekend are positive news for peace hopes. On the other hand, we have been here before in this war and not all the parties to this conflict seem happy with the proposals on the table.

Chart View

From a chart view though (weekly chart below with 13 and 50-week moving averages), the pullback in the front month contract to the breakout zone (top blue line, near $78.60/bbl.) is interesting. A turn below this line should see the 50-week moving average come under pressure near $76.30/bbl. next. Sustained losses below this average would leave $73.50/$72 per bbl. support under pressure in the near term with scope to see losses back to the $60/bbl. area (lower line) over time. The latter was our target since mid-2022 as we see the oil market as being structurally over supplied. If a potential ceasefire extension turns into a peace deal and normality returns to the flow of traffic through the Straits of Hormuz, then it seems likely that oil prices will fall towards $60/bbl. further out.  

Clues from the forward curve

Energy market practitioners and analysts will be quick to point out that supplies may be disrupted for months as crude oil and refined products are either at the wrong place or otherwise disrupted. This is true, but the broad market trades on headlines and right now the fear of higher near-term prices has turned sharply to the fear of prices falling a lot further. The forward curve below shows that the market is still in backwardation (futures prices are lower further out in time). A ‘normal’ futures curve would show the cost of borrowing/storage etc., and prices further out ‘should be’ higher than near term prices.

Clues from the December 2029 contract

Another way to look at future expectations is to look at contracts further out in time. The weekly chart below shows the December 2029 contract. Prices held below $80/bbl. on the spikes higher (traders were not thinking that the conflict would disrupt supplies/lift prices on a sustained basis). Right now? Watch for the Dec’29 contract to fall towards $68.30/bbl. (50-week moving average) for a push to the $64/bbl. area (early January 2026 lows). However, at some stage the market should return to a contango situation where front month prices are below longer-dated futures prices.

Bottom line

Hopes for peace are seeing oil prices fall a lot. This is likely to build as momentum for bear views will squeeze longs and hopefully evidence of a sustained peace deal builds.

We are not looking for geopolitical tensions to disappear in the Middle East, but a return to safe passage through the Strait of Hormuz and an end to the hostilities in Iran should see energy markets return to normality over time. This war may not end up in a ‘ten most idiotic wars in history’ but it probably ranks in the top 100 given what the outcome may be when it is concluded. The loss of life is always a concern. But the big lesson from this war may be that Iran can effectively shut the Straits of Hormuz, and that this matters.

For the oil markets the focus will return to the UAE leaving OPEC+ as they want to increase their oil production and sales. Saudi Arabia is the enforcer of production and price stability in OPEC+ and they also have incentives to sell as much as they can over the coming months. For those of us who thought that supply/demand imbalances should see $45/bbl. and lower over time since mid-2022, the breakout of peace suggests that the market may be back on track for lower prices.

Watch the 13-week moving averages as resistance now. If the $80/bbl. to $76.30/bbl. area in the front month contract holds on dips then the risk of another bounce in prices may build. More likely? Watch for prices to continue to fall unless the war heats up again.

Gerry Celaya, Chief Strategist