Crude oil prices pulled back sharply in late trade yesterday, and the selling continued this morning. The pullback followed a five-day rally, which saw front-month WTI break out of a downtrend which had been building since the summer. This week’s countertrend rally saw WTI trade above $62 per barrel yesterday to hit a ten-week high. The gains came as geopolitical tensions rose.
Source: TN Trader
Oil traders were particularly concerned by President Trump’s threat of intervention (likely military) should the Iranian regime start to execute arrested protestors. That threat appeared to evaporate overnight, and front-month WTI fell back sharply towards $59 before a modest bounce. The question now is whether the US military threat is over. And, if so, will crude oil fall further with prices dropping back into the downside trend?
That said, the broader backdrop remains complex. Rising US crude inventories and increased Venezuelan oil flows toward the US weigh on prices. But ongoing geopolitical uncertainty may still put a floor under crude oil for now. While some see scope for further upside if tensions re-escalate, the market remains vulnerable should the risk premium unwind further.
Should there ultimately be regime change in Tehran, then this would suggest another source of additional supply. But, as seen over the last few days, there’s also the more immediate risk of potential supply disruption triggering sharp rallies.
