A shaky start to the week after news that Saudi Arabia’s Abqaiq processing facility and the Khurais oil field have temporarily been shut down after two drone attacks by Yemen’s Houthi rebels over the weekend. The shutdown has disrupted approximately half (5 mb/d) of Saudi Arabia’s output and about 5% of global production.
The drone attack serves as a wakeup call to the crude oil market that has largely remained indifferent to rising tensions in the Gulf region including the attack on two tankers in the Gulf of Oman in June, instead preferring to focus on the implications of the U.S. - China trade war.
After closing at $54.85 on Friday, crude oil futures traded to as high as $63.33 shortly after the re-open this morning. After reassurances from the Saudis that lost production would soon be restored and a decision from President Trumps to authorises the release of oil from the strategic petroleum reserve, the price of crude oil is trading back below $60.00 at the time of writing.
Despite signs of normalisation in the crude price already beginning to appear, the threat of future drone attacks and the ability to send the price of crude oil up over 10% in an instance, is likely underpin the price of crude oil in coming months. As an aside, it brings the Gulf region one step closer to military conflict, an unwelcome development at any time. More so now, given the global economies already fragile state.
These threats are now reflected in the Weekly Chart below, which shows crude oil has broken above downtrend resistance near $59.00, confirming the formation of a medium-term low at the double bottom from the June and August lows $50.50 area.
As such, buyers are likely to emerge on dips into the $59.00/58.00 support zone with sell stops placed below $55.00. In terms of upside targets, interim resistance is viewed at $64.00, before the April 2019 $66.60 high.
Source Tradingview. The figures stated are as of the 16th of September 2019. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
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