In this Crude oil market analysis, we delve into both the fundamental and technical aspect of the black gold.
Middle East Conflict Fuels Oil Price Surge
Reuters – On Friday, a significant increase in oil prices was observed due to concerns that the ongoing conflict between Israel and Hamas might lead to instability in the Middle East, thereby affecting the worldwide oil supply. The situation was further complicated by Iran’s suggestion of a potential escalation in the conflict.
The cost of West Texas Intermediate, exceeded $85 per barrel on Friday, marking an approximate three per cent increase over the week. The price had initially spiked on Monday following an attack by Hamas on Israel but decreased subsequently as it was anticipated that the conflict would be controlled.
However, Iran’s foreign minister issued a warning that if the Gaza blockade persisted, militants supported by Iran might intensify Israel’s war against Hamas.
Oil Market Volatility Amid Iran Involvement
The oil market experienced considerable fluctuations this week. Market participants are attempting to account for the possibility of Iran, a known supporter of Hamas with arms and funds, entering the war and the potential risk this could pose to broader oil flows. This uncertainty has led to significant variations in oil prices.
Tamas Varga, an analyst at PVM Oil Associates Ltd., stated that the current trading environment is suited for those who are daring and adventurous. He also highlighted that the deteriorating situation in Israel/Gaza serves as a reminder of the persistent risk associated with the Middle East.
On Thursday, U.S. crude oil stocks saw their largest increase since February, causing a decline in prices. However, this was offset by another reduction in supply at Cushing, Oklahoma — the delivery point for WTI. The International Energy Agency noted that oil prices have recently dropped from near US$100 per barrel, suggesting that prices had reached a point where they began to impact demand negatively. Nevertheless, they still forecast record global oil consumption for this year.
Crude Oil Technical analysis
FxNews – Crude oil prices experienced a rebound after briefly hovering within Ichimoku cloud. This market activity was anticipated due to recent geopolitical tensions in the Middle East. As a result, technical indicators hinted at a potential trend reversal. The Relative Strength Index (RSI) displayed a divergence, while the stochastic oscillator remained in the oversold territory. Currently, crude oil prices are testing the previously broken support level around $87.
Upon closer inspection of the 4-hour chart for crude oil, we observe a breakout from the bearish channel, marked by a strong bullish candle. As crude oil prices continued to rise, the stochastic oscillator entered the overbought zone. This suggests that crude oil prices may experience a minor pullback to the $85 level before potentially increasing further. The $85 pivot point presents an attractive bid price for bullish investors.
J.J Edwards is a finance expert with 15+ years in forex, hedge funds, trading systems, and market analysis.