Geopolitical risk premium drives WTI crude to over 11% weekly gain, largest in months

Geopolitical Tensions Drive Market Reversal

The biggest catalyst for this week's oil price surge came over the weekend, as fighting between U.S. and Iranian forces intensified. New U.S. airstrikes targeting military facilities near Iran's southern coast were followed by Iranian missile and drone attacks on U.S. positions in the region. The renewed conflict raised concerns that oil exports from the Persian Gulf could once again be disrupted.

Iran also threatened to interfere with shipping routes, including the Strait of Hormuz and potentially the Red Sea through allied Houthi forces. Since roughly one-fifth of the world's seaborne crude oil moves through the Strait of Hormuz, traders quickly priced in the possibility of tighter global supplies.

September WTI Posts Strongest Weekly Gain in Months

September WTI crude oil rallied over 11%, posting its strongest weekly gain in months as traders rapidly rebuilt a geopolitical risk premium into the market. After opening the week near $72.50, prices climbed above $80 before easing slightly into Thursday's close.

The move marked a dramatic reversal from the previous two weeks, when optimism over improving oil flows through the Strait of Hormuz had pressured prices lower. This week, renewed military action between the United States and Iran shifted the market's focus back to the risk of supply disruptions.

U.S. Inventory Data Reinforces Tight Supply Outlook

The market also received support from fresh U.S. inventory data. The Energy Information Administration reported that crude oil inventories fell by 1.7 million barrels last week, a larger draw than analysts expected. Gasoline inventories also declined, suggesting fuel demand remained steady during the peak summer driving season.

Although distillate inventories increased and domestic crude production held near record levels, the inventory report reinforced the view that physical supplies remain relatively tight despite higher U.S. output.

Trader Sentiment Shifts Sharply

Earlier this month, traders had expected oil prices to remain under pressure as diplomatic efforts between Washington and Tehran appeared to improve and forecasts called for Middle East production to gradually recover. The renewed fighting completely changed that outlook.

Instead of focusing on additional supply returning to the market, traders concentrated on the growing possibility that existing exports could once again be interrupted. The rapid shift in sentiment helped fuel aggressive short covering and fresh speculative buying throughout the week.

Technical Analysis: Weekly Light Crude Oil Futures

Trend Indicator Analysis

September WTI crude oil rebounded sharply this week after recapturing a critical retracement zone at $75.40 to $70.70, which is now new support along with the 52-week moving average at $67.98. Controlling it all is the main bottom at $67.12. A trade through this level will reaffirm the downtrend.

The new short-term range is $95.30 to $67.12. Its retracement zone at $81.21 to $84.53 is the next major upside objective. Trader reaction to this zone will determine the near-term direction of the market.

Since the main trend is down, sellers are expected to return on a test of the zone. However, overtaking $84.53 will shift momentum to the upside and lead to a possible retest of minor resistance at $89.90 or the contract high at $95.30.

Weekly Technical Forecast

The direction of the Weekly September Crude Oil futures contract for the week ending July 24 is likely to be determined by trader reaction to the retracement zone at $81.21 to $84.53.

Bullish Scenario: A sustained move above $84.53 will signal the return of strong buyers, not just short-covering.