FxWirePro: Long Brent targeting $95 per barrel as geopolitical tensions intensify in Middle East

As tensions amplify in the Middle East, we believe that the global benchmark Brent crude might see sharp surge ahead. Despite being the global benchmark and underlying product be oil from the North Sea, the benchmark closely follows the happenings in the Middle East, more so, compared to its North American benchmark WTI.

Risks stemming from the Middle East:

• Though all the parties have agreed to an election and national reconciliation process, the continuing crisis in Libya has led to production decrease to the tune of 400,000 barrels per day, according to the June monthly OPEC report.
• Iraq has also fallen into political chaos in recent weeks as protests against the government and years of economic stagnation, and the impact on oil production is to be reflected in July report.  
• But most importantly, U.S. sanctions looming over Iran, of which, the first tranche would go live in August and the rest by the end of the year, is destabilizing the region.
• Iran has threatened that if its oil supplies, which is around 2.5 million barrels per day, is blocked by the United States then it would respond by halting exports from the Gulf countries by blocking the narrow bottleneck in the Persian Gulf, known as the Strait of Hormuz, where the channel is just 54 km wide in places. The threat is significant as almost a third of global sea-borne crude passes through the channel.
• In addition to that, just yesterday, Saudi Arabia announced that it would halt the passing of crude through the Red Sea channel, which is at the opposite side of the Middle East compared to the Strait of Hormuz. The move came in response to a Houthi rebels attack from Yemen on two Saudi oil tankers in the red Sea channel near the bottleneck in the channel, which known as the Gulf of Aden.
• The troubles in Syria, and as well as the tensions between Israelis and Palestinians also contribute to the geopolitical instability.

Given the geopolitical risks surrounding the Middle East, we would recommend our readers to go long on Brent.

However, the risk to the outlook is increased production from OPEC and the lessening of geopolitical tensions. 

Trade idea:

Long Brent at the current price of $74.3 per barrel, with a target of $95 per barrel, with a stop loss around 66 per barrel.