Sharp fluctuations in Oil Prices — What Is Happening in the Markets?

Introduction

Oil prices have recently risen amidst global tensions. Prices rose significantly at first and went back soon enough, showcasing investors and traders pricing risk in real time as changes in supply take immediate effect on markets. When uncertainty rises, investors tend to add what is known as a "risk premium" to energy prices, particularly given how sensitive the oil market is to any potential disruption in global supply chains.

Fundamental Analysis

US crude oil prices jumped roughly 5% at the open following a sharp decline of more than 11% in the previous session — the largest single-day drop since 2022 — after expectations grew that geopolitical disruptions were nearing an end. West Texas Intermediate (WTI) crude had earlier recorded levels exceeding $119 per barrel, the highest since June 2022. At the same time, reports suggest the International Energy Agency may release large quantities from strategic reserves into the market, which could partially offset any potential disruption to Gulf oil supplies.

One of the most prominent factors driving prices higher was concern over shipping traffic through the Strait of Hormuz, through which approximately 20% of global oil supplies pass. This waterway is one of the most strategically important points in the energy trade, and any concerns related to oil transit through it prompt markets to move quickly — even without an actual supply disruption occurring. A rise in the probability of logistical risks, or higher shipping and insurance costs, is enough to push prices upward.

However, markets began reassessing these risks, particularly as no concrete signs emerged of supply disruptions or a decline in global production. As a result, prices partially retreated as some of the risk premium that had been priced in initially faded — a recurring pattern in energy markets when prices move based on expectations rather than actual reality.

At the same time, oil remains a key factor in the global inflation equation. Rising energy prices directly affect transportation costs, production costs, and supply chains, which could bring inflationary pressures back to the forefront. This is what makes oil price movements closely watched by central banks, especially at a time when many economies are trying to bring inflation under control after a prolonged cycle of monetary tightening.

Therefore, continued oil price volatility does not only affect energy markets — its impact extends to monetary policy as well. If oil prices remain elevated for an extended period, central banks may find themselves under additional pressure to maintain a tighter monetary policy stance for longer. Conversely, if prices stabilize or decline, that could ease some inflationary pressures and give policymakers more room to move toward more flexible monetary policies in the period ahead.

Technical analysis

Figure 1: Brent Crude, daily chart

The technical movements in oil prices indicate a clear breakout above the descending trendline that had been pressuring prices since the beginning of 2024, reflecting a shift in momentum toward an upward trend. This breakout was accompanied by a strong acceleration in price action, with prices recording a sharp rise before pulling back slightly toward the $87–$89 range, suggesting that part of this move may have been driven by short-term volatility following the breakout.

On the technical indicators side, the MACD shows a clear acceleration in positive momentum, while the RSI has risen above the 70 level, reflecting short-term overbought conditions. Technically, the $70–$72 zone, which previously acted as resistance, has now become a key support area, while prices may see some consolidation or a brief correction before it becomes clear whether this breakout will lead to a broader upward trend in the period ahead, according to analyst expectations.