- Oil futures rose swiftly by over 4.5% during yesterday’s session, climbing to the $69 per barrel area, a 2-month high as traders reacted to the prospect of flared up tensions between the US and Iran, as the nations failed to reach a nuclear deal after weeks of negotiations.
- Furthermore, the US administration has announced that all non-essential embassy staff and personnel in Baghdad, Bahrain and Kuwait can be repatriated if they voluntarily choose to do so, fuelling speculations that direct conflict may arise within weeks.
- Furthermore, Israel issued a stark warning against the Iranian regime, threatening to strike nuclear facilities on the back of the failed nuclear deal talks, aggravating the situation further.
- Full out conflict in the Middle East, more specifically in the Persian Gulf, could severely destabilize and outright disrupt the supply chain and logistic capabilities of the entire region, from which almost one third of global oil is flowing out of.
- At the end of the day, these developments sap away the potency of the persistent oversupply conditions that kept prices somewhat stable around the $60 per barrel range over the past few months and opens up the possibility of inflated crude prices in the near future, should a full-blown fight episode erupt across the region.
Technical Analysis of Oil
WTI Chart – Negative momentum drives WTI prices closer to fresh 4 year lows
- Resistance: 67.00 (R1), 71.50 (R2), 74.80 (R3))
- Support: 63.60 (S1), 60.00 (S2), 55.15 (S3)
Yesterday, WTI futures broke definitively above the $63.60 area that has acted as resistance for the past three months and have quickly risen to the $69 per barrel area, as traders rushed to price in the potential of a major escalation of tensions between US-Iran after the failure of reaching a nuclear peace deal. Given the technical breakout we are forced to alter our former sideways assessment and adopt a bullish bias for the commodity.
Supporting the bullish case is the RSI indicator which currently registers a value of 62 (after today’s pullback) a flared up ADX with a value of 46 signalling strong momentum, in combination with a +DI that dwarfs the -DI, highlighting that the buying pressure overpowers selling activity. Lastly the MACD indicator further confirms the strength of the bulls and confirms that they dictate the control the direction.
Should the bulls maintain control, we may see the commodity reclaiming the $69 (R1) resistance level and head on to challenge the $71.50 (R2) peak, last seen on April 2nd. Should the bears take over with strong momentum on their side, we would reasonably expect to see a return of price actin back to the $63.60 (S1) area that will act as the first line of defence for the bulls, a possible break below and price heading for the $60.00 (S2) support base once again.
