Over the last year on my The Bigger Picture videos I’ve been watching a potentially very bullish setup form across the oil markets and I was planning a post on that this week before the expected attack on Iran. That attack happened earlier than I expected on Saturday so I’m doing that today.
Before I look at that though, I’ll go through the reason why this conflict in Iran could cause a really serious problem in world oil markets in coming weeks and perhaps months.
World oil demand is currently about 105 million barrels per day. In the absence of major supply issues there is currently a surplus of two to three million barrels per day in oil supply above that demand level which is the reason that prices have been soft and kicking around the big support area at $50 to $55 in recent months.
Of that supply Iran has been exporting about two million barrels a day in recent years, so an interruption to that supply wouldn’t obviously disrupt oil markets much, but the real problem would be disruption to oil being shipped through the Strait of Hormuz.
The Strait of Hormuz is one of the most strategically important choke points in the world, as the only sea passage out of the Persian Gulf into the open ocean, and has never been closed for an extended period during Middle East conflicts, but Iran has made preparations to close it before and is planning to close it now. In the event of an extended conflict now the Strait may be closed to shipping for months. As of right now almost all shipping through the Strait of Hormuz was stopped over the weekend after Lloyds of London has shifted to wartime insurance rates for all shipping through the Strait. Iran has stated that has closed the Strait of Hormuz and will fire on any shipping attempting to go through it.
How much oil is shipped through the Strait of Hormuz? Well I’ve read estimates ranging between 13 to 20 million barrels per day and Wikipedia is stating that 25% of seaborne oil and 20% of liquefied natural gas is shipped annually through the Strait of Hormuz. Most of this oil can only be shipped through the Strait so if this is disrupted for more than a few days then that would likely cause a major supply disruption that could trigger a major price spike.
This could cause an issue in natural gas markets too of course, but in terms of oil markets I’ve been watching a very bullish setup form over the last year that may now be about to play out over the next few weeks.
The bullish setup on the three oil markets I watch isn’t quite the same but they rhyme strongly enough that they are in effect variants on the same setup.
On WTIC (light crude oil) there was a big high in 2022 at 126.42. From there a decent quality falling wedge formed and broke up in mid-2025 to a high at 78.40. The wedge low at 56.06 was retested in late 2026, establishing a high quality double bottom setup.
WTIC monthly chart:
On GASO (gasoline) there was a big high in 2022 at 4.12. From there a decent quality falling wedge formed and broke up in mid-2025 to a high at 2.38. The subsequent move down reached and slightly underthrew wedge support so I redrew it as a larger falling wedge, noting on the chart on 12th October that there was possible setup going much lower but I much preferred the bullish falling wedge setup. The updated falling wedge broke up again in February with a decent quality double bottom setup
GASO monthly chart:
On HOIL (heating oil) there was a big high in 2022 at 4.46. From there a decent quality falling wedge formed and broke up in mid-2025. Since then a high quality inverted head and shoulders has formed which broke up last week with a target in the 3.47 area.
HOIL weekly chart:
On the WTIC daily chart a smaller double bottom broke up on 1st February with a target in the 68.90 to 70 range and that target was reached last night. There is a larger double bottom setup that on a sustained break up over 78.40 would have a target in the 10.72 to 101.82 area.
It is also possible that the falling wedge from the 2022 high might well be a bull flag, in which case the move might extend higher into a retest of that 2022 high at 126.42.
WTIC daily chart:
On the GASO daily chart there is a smaller medium quality IHS that I have not marked in that has broke up last week with a target in the 2.36 area and reached target yesterday. The main reversal pattern however is the large double bottom broke up yesterday over 2.384 with a target in the 2.9 to 3.09 range.
It is also possible that the falling wedge from the 2022 high might well be a bull flag, though it retraced over 61.8% from that high which has lowered the pattern quality, in which case the move might extend higher into a retest of that 2022 high at 4.12.
GASO daily chart:
On the HOIL daily chart a good quality IHS formed and then broke up last June before failing in December. That evolved into a larger good quality IHS that broke up last week with a target in the 3.47 area.
It is also possible that the falling wedge from the 2022 high might well be a bull flag, though it retraced over 61.8% from that high which has lowered the pattern quality, in which case the move might extend higher into a retest of that 2022 high at 4.46.
HOIL daily chart:
What’s the bottom line here? In the event of a serious supply disruption in oil markets, which may well now be caused by the Strait of Hormuz being closed to commercial traffic for several weeks or months, there is a clear setup here that could take oil prices back to the major highs made in 2022, and potentially to new all time highs across the board.
The current all time highs on were made at the 2022 highs on Heating Oil at 4.46, and Gasoline at 4.12, and at the 2008 high on Light Crude at 147.27, though the 2022 lower high at 126.42 would be the bull flag target.
Was I expecting this? No, I was expecting a big price shock on oil markets in the next year or two but was leaning towards that coming from a collapse of the government in Russia, which is clearly losing the war with Ukraine and is running low on money and morale. I’m still thinking we may well see that in a year or two. Russia has been supplying about 9 million barrels per day into world oil markets.
In the short term any extended supply squeeze on oil is good news for Russia and would likely extend the war in Ukraine.
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