# Brent Hits $106 as China Tests Hormuz Waters

13 May 2026 · OILAV

**Chinese tanker breakthrough in Hormuz sends crude to 2-month highs as UK mobilizes 40-nation naval coalition and Trump threatens ceasefire collapse.**

## Key levels

- Brent: support 102.5, resistance 112
- WTI: support 96.8, resistance 108

## Price Action & Technicals

> Technical breakout confirmed - next resistance at $112 Brent, $108 WTI.

**Brent exploded 4.86% in five days to $106.21**, hitting session highs of $108.42 as Chinese tanker movements through the Strait of Hormuz ignited short covering. WTI followed suit with a **5.49% surge to $100.66**, breaking cleanly through the psychological $100 barrier. The **OVX fear gauge at $75.69** remains elevated but shows signs of stabilization, suggesting traders are pricing in a new regime rather than panic selling.

**Volume surged across all energy contracts** with WTI hitting 606,840 lots - triple the recent average. Heating oil's **4.99% jump to $4.09** confirms the distillate shortage story, while gasoline's stubborn **-0.98% decline** reveals demand destruction from pump prices hitting $4.50+ nationwide. The curve remains in steep backwardation with front-month premiums signaling immediate supply stress.

## Supply & Geopolitical Disruptions

> Chinese breakthrough could trigger flood of copycat transits - watch for Iranian response in next 48 hours.

**The Chinese VLCC transit attempt marks the first major test** of Iran's chokepoint control since the February strikes, with ship-tracking data showing movement along the eastern corridor. This comes as the **UK announces deployment of 40-nation naval coalition** including autonomous mine-hunters and counter-drone systems - the largest Western military presence in the Gulf since 1991.

**Physical crude premiums collapsed from $30+ over Brent to near-parity** as buyers refuse term contracts amid transit uncertainty, but spot markets remain chaotic. Iraq and Pakistan's **new transit deals with Iran** for oil and LNG shipments signal Tehran's growing influence over regional energy flows. Trump's warning that the ceasefire is on **'life support'** after 10 weeks suggests military escalation remains likely.

## Inventories & Fundamentals

> Inventory draws accelerating as refinery runs increase despite Hormuz uncertainty.

**API reported 2.188 million barrel crude draw** for the week ending May 8, following prior week declines as refiners struggle with distillate demand. Gasoline stocks showed **surprise build** despite driving season kickoff, confirming demand destruction from $4.50+ pump prices. The **457.2 million barrel total crude inventory** remains below 5-year averages with production flat at **13.573 million bpd**.

**Asian heat waves drive LNG competition** as Japan and South Korea pivot back to coal generation amid Middle East supply disruptions. US natural gas at **$2.83** benefits from early cooling demand, while Permian associated gas growth threatens to cap prices through 2027 according to EIA's latest forecast revision.

## Positioning & Market Structure

> Positioning remains bullish but not extreme - more upside if Chinese transit succeeds.

**CFTC data shows net spec longs at 131,956 contracts** as of May 5, with open interest surging **115,738 contracts** - the largest weekly increase since the February Iran strikes began. Money managers hold **214,039 long positions** against just 82,083 shorts, suggesting significant room for further squeeze if supply disruptions worsen.

**Maersk continues Hormuz transit suspension** despite the Chinese test, keeping container shipping diverted around Africa. European oil majors' Q1 trading desk profits exceeded expectations, capitalizing on volatility and arbitrage opportunities. The **backwardation structure** in crude futures suggests traders expect near-term tightness to persist through summer driving season.

## Policy & Macro Outlook

> Political pressure mounting on both sides of Atlantic as energy costs threaten economic recovery.

**Trump floated federal gas tax suspension** as retail prices surge toward election-year danger zone, though slim consumer savings would strain highway funding. Bank of Canada flagged **geopolitical risks as top economic threat**, with energy price spikes threatening to derail North American growth recovery.

**Supply chain stress indices approach Covid-era peaks** as Hormuz disruptions ripple through global trade. Copper near record highs despite war premium suggests industrial demand remains resilient, supporting energy-intensive sectors. Iraq's **May 27 parliamentary deadline** for new government formation adds another Middle East flashpoint as sectarian tensions rise over Iran alignment.

## What to watch

- Chinese tanker progress through Hormuz eastern corridor - next 24hrs
- EIA weekly petroleum data Wednesday 10:30 ET
- UK naval deployment details and Iranian military response
- Iraqi PM nomination vote scheduled May 27
- Trump administration gas tax announcement timing

## Risks to the view

- Iranian retaliation against Chinese tanker transit (likely)
- US-Iran ceasefire collapse within 72 hours (possible)
- OPEC+ emergency production increase meeting (tail risk)

## Outlook

Chinese Hormuz transit success could trigger $115+ Brent as other buyers follow suit, overwhelming Iranian interdiction capacity. However, any military response to the Chinese vessel would likely send crude toward $125 and prompt immediate US retaliation. Near-term bias remains bullish through summer driving season.