Since February 28th, crude oil has been among the best performing major instruments as markets attempt to price in the possibility of sustained disruption to exports of the commodity from the Gulf. Traders have concentrated especially on the large drop in traffic through the Strait of Hormuz and possible continuation or resolution. This article provides a general summary of recent events and broad fundamental analysis then looks briefly at the chart of American light oil (symbol USOIL).
Disruption in the strait
Exports of crude oil from Gulf nations have declined sharply in recent days as passage through the narrow Strait of Hormuz, one of the most prominent chokepoints for the global supply of crude oil, has become much more difficult. The direct threat of attack from Iran is extremely high and more immediately the cost of insuring shipping has risen enormously. However, the impact of the situation is more and less severe for different countries:
Source: https://www.eia.gov/international/analysis/special-topics/World_Oil_Transit_ChokepointsAccording to data from the USA’s Energy Information Administration (EIA), China receives the largest share of daily crude passing Hormuz, about 45-50% of the total in late 2025 or around 5.5 million barrels. China is also the world’s largest importer of crude oil. An extended closure for practical purposes of the strait would lead to a major supply shock and potential energy crisis.
Iran doesn’t have the military capacity to block all passage by Hormuz with force, though, and it’s questionable whether it’s in the Iranian government’s interest to do this even if it were strong enough. China is on average by far the largest buyer of Iranian oil and in recent years one of Iran’s main suppliers of military hardware.
Given that the Iranian government – as of now – seems likely to endure the present geopolitical crisis in more-or-less its current form, antagonising China by attacking tankers makes no long-term sense. Both China and the USA have a strong strategic interest in keeping the strait business as usual as far as possible in the circumstances, if necessary by underwriting insurance as an emergency measure.
All the Gulf’s oil past Hormuz?
The other obvious counterpoint to the narrative of semi-permanent disruption of exports from the Gulf is that Saudi Arabia has been planning in some detail for exactly this specific situation since the Iran-Iraq War in the 1980s:
Major pipelines from the Persian Gulf. Source: the EIA, https://www.eia.gov/international/analysis/special-topics/World_Oil_Transit_ChokepointsThe East-West Pipeline, usually better known in English as the Petroline, was commissioned in 1982 as it appeared increasingly likely that Iran’s new government could and would block the Strait of Hormuz in response to the USA’s material support for Iraq. The Petroline consists of two pipelines running around 1,200km from the Gulf to Yanbu on the Red Sea with a capacity of around 5 million barrels daily.
In practice, the combination of the Petroline and the Abu Dhabi Pipeline (also known as the Habshan-Fujaira Pipeline) makes it impossible to cut off all exports of crude from the Gulf with only a naval blockade of the Strait of Hormuz. That neither the Houthis nor Iran have used drones or missiles on a large scale recently to attack these pipelines strongly suggests that they lack the capacity to do so.
Context: recent developments in production
Meanwhile OPEC+ as of now seems likely to proceed with rolling back cuts to output next month. Although it seems like most other factors apart from current geopolitical tensions are irrelevant currently, the previous context of possible excess supply is very important because it appears that various countries outside the Gulf are pumping below capacity:
American production of crude oil reached a peak of more than a decade in October 2025 at around 14 million barrels daily. The possibility of at least some extra production in the USA combined with the current likelihood of Russia significantly boosting exports to China and India might mean that any short-term problems with supply could be resolved relatively easily.
The problem here is that data on actual production always lag from all major producers, in some cases such as Russia lagging up to six months. Furthermore, public wartime statistics on Russian production are at best questionable, so this factor alone definitely isn’t a reliable signal. In the medium to longer term, the outlook for oil depends very much on how long the current Gulf conflict continues and its likely results, so it seems extremely risky to trade oil for the long term now given the number of moving parts fundamentally.
USOIL pushes above $77 with $80 and above in sight
Oil gapped up as expected after the weekend of 1 March with significant followup since then to reach intraday highs above $77. Overbought signals from the slow stochastic and Bollinger Bands can probably be discounted given the context of the news. With daily ATR at around $3, it’s a challenge to find a reasonable stop on this timeframe if using the conventional rule of 1.5-2x ATR in a significant technical area.
The medium-term target for buying, assuming fundamentals and sentiment don’t change significantly, would probably be the area of the 50% monthly Fibonacci retracement around $84.50. This is drawn here based on the highs around the initial Russian invasion of Ukraine in 2022. For this to be confirmed as a likely target, the price would first need to break through the 38.2% Fibo around $77.60 without a subsequent large retracement.
The obvious target for selling on this timeframe would be a closing of the gap to around $67, but the probability of this occurring soon seems remote except in the unlikely scenario of a sudden, clear resolution of the conflict. Buying significant dips of around $2 or more and selling new highs with reasonably close trailing stops might be a conventional short-term approach to these conditions.
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The opinions in this article are personal to the writer; they do not represent those of Exness. This is not a recommendation to trade.
