Oil prices have resumed higher after initially easing off noticeably following the weekend’s big gap. The US government has alleged that Iran was behind attacks, although Tehran denies any involvement. Houthi rebels in Yemen have claimed responsibility.
The situation remains perilous, and oil prices are likely to move sharply depending on what happens next. Will there be further militant attacks? Will Saudi Arabia and/or the US retaliate, especially if Iran is proved to be involved? The possibility of military action is a risk that investors cannot rule out at this stage. It is also not clear how badly Saudi’s production capacity has been impacted and how long it will take for operations to resume at full capacity. We think that oil prices are likely to fall back once the Middle East situation calms down slightly. After all, the demand outlook remains soft with global data deteriorating – including from the top oil consumer China, as evidenced in the latest industrial data released overnight. From a supply point of view, OPEC’s other members will be more than happy to step up production to make up for some of the short falls in Saudi’s regular crude production. US President Donald Trump has meanwhile already authorised the release of US reserves.
As oil prices soar, it is worth keeping a close eye on crude and related markets such as the major global indices, energy stocks and Canadian and Norwegian dollars, to spot decent tradable opportunities. On that note, here is an intraday chart of WTI, with the key price levels to use as reference points:
Source: Trading View and City Index.
Among the above levels…
- $63.00 is an interesting area to watch for it was a key support zone before it broke down back in May, leading to a sizeable drop in oil prices. Once support, could it turn into resistance? The bears would like to see a close below this area, while the bulls would be keen to see strength into the close and a finish above this hurdle.
- $59.93 is the most recent low on the 60 min time frame. Thus, if oil prices were to go back below this level, we may see some long-side liquidation. So, if you are bearish on prices, a break below this level is what you may be after, unless an even more significant reversal pattern is observed at higher levels first.
- $58.73 was the high from last week – interestingly, this has turned into support earlier in today’s session. An eventual break below here could pave the way for the closure of the weekend gap.