Crude oil drifted lower this morning, adding to yesterday’s sharp drop. Front-month (September) Brent came close to hitting $70 per barrel, a level last seen the day before the US and Israel launched their first attack on Iran. The chart below is for WTI, the continuous contract, and shows prices testing major support around $68 per barrel.
Source: TN Trader
A ceasefire between the US and Iran, which includes a demand that Israel cease its war with Hezbollah in Lebanon, has been in place since April. Yet there have been numerous tit-for-tat attacks, the latest taking place last weekend. Despite this, traders have chosen to look through these issues and assume that hostilities are effectively over.
News that some shipping has transited the Strait of Hormuz has also helped to push oil prices down. Over the past six weeks or so, Brent crude has dropped around 30%. For all oil contracts, not just Brent, their respective daily MACDs are at extremely oversold levels. This has increased the possibility that oil may suddenly snap higher, so traders should exercise more caution than ever.
Despite this, with the oil price back to pre-war levels, traders are looking ahead to a market where demand growth continues to slow while production increases. Tehran’s control of the Strait of Hormuz has been a huge wake-up call to the market. Traders expect Gulf countries to spend more time and money developing alternative routes.
* The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance.
