18-Month Cycle & Major Lows: The 18-month cycle low that I was anticipating for mid-December 2025 arrived right on schedule (see middle panel). We likely also have a major 4-to-5-year cycle low in place, meaning we are in the very early stages of a new macro up-cycle.
Impending 40-Week Cycle Low: We are currently due for a 40-week cycle low, which historically carries a wide range but averages around 228 days. Over the next few weeks, we could see the market retest or slightly undercut recent lows, potentially filling the $67.83 gap on WTI futures (note that the Brent gap has already been filled).
Next Leg Higher: Once this low is firmly established, I expect the next leg higher to carry into the fall, aligning with typical seasonal strength through roughly October.
Short-Term vs. Long-Term Technicals: Price is currently trading within the 20-week projection range—the half-cycle offset is illustrated in blue and purple (h/t Peter Eliades for bringing his excellent service to TradingView). To trigger the upside projections, price needs to reclaim its 200-day moving average (DMA), represented by the white line. Reclaiming this level is crucial to repairing the otherwise weak short-term technical picture.
Path to $150+: While the long-term structure looks like a textbook bullish breakout and retest, short-term momentum remains firmly to the downside. We need to see price recapture the 200 DMA and ultimately break above the diagonal resistance levels in the $80s, establishing a constructive structure of higher lows and higher highs on both the daily and weekly charts. The $120 level remains a massive overhead resistance; however, a clean close above it unlocks a move toward $150–$160, which remains our primary target for the coming months.
Speculator Capitulation: Speculative positioning has dropped significantly across both Brent and WTI (green line in bottom panel). This washout in positioning strongly supports the idea that a bottoming process is underway. There is a massive amount of dry powder in terms of financial barrels that can be aggressively added back the momentum shifts to the upside.
China Import Anomaly: The most critical variable to watch—and the primary reason oil prices haven't surged higher—is Chinese oil imports. China has essentially cut its imports in half, a reduction that effectively neutralized about 50% of the lost production and supply disruptions in the Gulf. They achieved this either by cutting refinery runs or aggressively drawing down their underground inventories (though without full data visibility, the exact mix remains speculative).
Macro Inventory Gamble: How long can China sustain a drawdown of 5 to 6 million barrels per day (MBD)? That is above my pay grade, but the global market is clearly continuing to deplete its inventories. The market is essentially betting on a normalization of the Strait of Hormuz and a return to regular production levels, which would theoretically allow countries to refill their Strategic Petroleum Reserves (SPR) at lower prices.
Trump-Xi Geopolitical Quid Pro Quo? This massive inventory drawdown directly coincided with the recent Trump-Xi summit. It raises an interesting geopolitical question: Did the Trump administration quietly trade a policy of non-intervention regarding a China-Taiwan reunification in exchange for Beijing drawing down its inventories to suppress oil prices during this crisis? Given that China appears poised to move on Taiwan in the next few years anyway, Washington may have decided to extract a major economic concession while they still could.
The most important thing to watch, and the reason oil prices never went higher, is China's oil imports. They essentially cut imports in half, neutralizing about half of all lost Gulf production and supply. They did this either by reducing refinery runs or drawing down underground inventories (which remains speculation due to a lack of visibility).
How long can they continue drawing 5–6 MBD? That is beyond my pay grade, but the world is clearly depleting inventories—effectively betting on Hormuz normalization and a return to normal production levels that would allow SPR refills at lower prices.
This also coincided with the Trump-Xi summit. Did Trump trade non-intervention in a China-Taiwan reunification for China drawing down inventories during this crisis to keep oil prices lower? China will take Taiwan in the next few years anyway, so they might as well get something out of China in exchange.
With the Strategic Petroleum Reserve (SPR) running at maximum levels in June and China cutting its imports in half, trapped tankers are now trying to exit the Strait of Hormuz simultaneously, putting heavy downward pressure on the spot market. However, looking a few months out, the picture becomes far less rosy.
First, the current SPR release will stop shortly, and those borrowed barrels must be returned with interest. Second, while Gulf production needs to ramp up, Iran is actively trying to control and slow down traffic; recognizing that the Strait of Hormuz is their primary leverage, they are attempting to restrict shipping lanes to their side of the strait, as shown in the chart above. Third, China will eventually have to normalize its imports, which will reintroduce 5 to 6 MBD of incremental demand to the market. Finally, the world has drawn down over 1 billion barrels of inventory that must be replenished, leaving nations with very little cushion for further emergency SPR releases in the event of any future escalation.
Is the grand TACO real? Iran won the war and Trump capitulated, giving Iran everything they asked for. Knowing Trump, it is very possible he signed an MOU just to open the strait and lower oil prices, without any intent to keep his side of the agreement.
Iran will try to keep Hormuz traffic constrained to avoid giving up their oil card, so expect periodic escalations. Furthermore, Israel doesn’t want this deal to be signed, so they will continue escalations in Lebanon; since Lebanon was included in the agreement, this undermines any long-term peace deal. If escalations continue, Iran would be inclined to seek nuclear weapons as the only long-term deterrent against the US and Israel. Ultimately, we should expect more back-and-forth escalations rather than one grand deal or reopening.
Bottom line: There is no easy solution and no fast path to normalization. Iran holds the cards and won’t give them up at this stage. Oil trading sub-70 is a function of short-term flows of trapped barrels out of Hormuz, SPR releases, the China import boycott, and a speculator positioning unwind. Looking a couple of months out, the risk-reward is heavily skewed to the upside.
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