In line with what has been happening with WTI crude oil, Brent oil has surged for the fourth straight session.  Now at an eight month high, there is potential for the price of brent to climb higher in the coming sessions.  Currently trading at $120.29, the commodity rose to as high as $120.38 in US trading – higher by about 1% on the day.

With the euro recovering to above $1.3000, you can bet there will be rising demand for Brent crude oil supplies that are currently priced in US dollars.  We’ve seen this before – in price hikes of West Texas Intermediate crude oil prices, which soared past $100 and onto $146 back in 2007 and 2008.  During that time, US crude oil demands were raised as refiners with assets in Euros could buy the commodity cheaply – the euro was higher by approximately 23% at the time against the US dollar.  The same dynamic could very well drive Brent prices higher as the single currency still remains on top when it comes to pricing against the greenback – especially with the commodity being a main benchmark for a majority of the world’s oil pricing.

Of course, this isn’t counting currently existing market risk with Iran.  Whenever there is event risk in the market, it tends to increase the relevancy of supply and demand speculation.  In this case, speculation has been geared towards a potentially shortened supply due to Iran’s retaliation towards other European nations.  Earlier this month European leaders decided to boycott new crude oil contracts with Iran – working with already existing US sanctions in pushing for immediate nuclear talks.

However, Iranian leaders took to heart the potential boycotts – which are to take place beginning this summer – proposing to block all exports to six major European countries.  With major countries in Europe – like France and Spain – still reliant on Brent crude, market traders are betting that they will likely have to pay higher prices given the smaller supply space.  There is currently no resolution to this potentially negative outcome.  As a result, as long as this situation lingers, there will be plenty of support for Brent to move higher.

So, how does this translate to foreign exchange?

The most likely play, given the current Brent crude situation, involves going long the Euro.  All things equal, the single currency could move higher against the greenback – built on higher demand for Euro as a result of a Greek resolution and rising risk demand, as well as short term price correlations between the two assets.  However, don’t be fooled.  This relationship isn’t bullet proof – as we had seen back in 2010, when the Euro exchange rate came under pressure due to Europe’s financial crisis.  Brent crude moved higher as traders sold the Euro.

The opportunity is buoyed by how much cheaper Euro calls currently remain against equivalent puts.

More on the Euro - Expect Another Euro Wave Lower, Against the Yen