Oil prices continued their downward trend on Tuesday, reflecting market skepticism and testing support for a potential upside. Traders are largely disregarding the recent geopolitical headlines: the funeral of the Iranian President, who died in a helicopter crash, and the international arrest warrant issued by the International Criminal Court for Israeli leader Benjamin Netanyahu and the country’s defense minister on war crimes charges.
At the time of writing, West Texas Intermediate (WTI) crude is trading at $78.13 per barrel, while Brent crude stands at $82.41 per barrel.
Market Dynamics and Key Influences
Despite these significant geopolitical developments, traders are not assigning substantial risk weight to these events, indicating a belief that they will not disrupt oil supply from the Middle East or global trade. This sentiment is evident as oil prices test the market’s resilience and the belief in further upside potential.
In parallel, the US Dollar Index (DXY), which measures the dollar’s performance against a basket of six major currencies, is showing indecision. Markets are oscillating between risk-on and risk-off sentiments ahead of Nvidia’s earnings announcement later today. Additionally, with several Federal Reserve officials scheduled to speak on Tuesday, market participants are bracing for repetitive messages that offer little new insight into the timing of the Fed’s initial interest rate cut.
Key Market Events:
- Geopolitical Tensions: Several countries have issued warnings and heightened alert levels following the death of the Iranian President in a helicopter crash. The situation is being closely monitored for potential retaliations.
- US Position on ICC Warrant: US President Joe Biden has criticized the International Criminal Court’s warrant against Israeli leaders, reaffirming support for Israel, as reported by Reuters.
- Russian Oil Output: Bloomberg News reports a 1.8% decline in Russia’s oil output at the start of 2024 compared to the same period last year, according to President Vladimir Putin.
- US Crude Stockpiles: The American Petroleum Institute (API) is set to release the US crude weekly stockpile numbers at 20:30 GMT. The previous week saw a drawdown of 3.104 million barrels.
Technical Analysis: OPEC Spare Capacity and Price Levels
Oil prices are testing an upward-sloping trend line from the December lows for the third consecutive week. Despite numerous headlines from the Middle East, traders are not perceiving these events as significant risks to oil supply or global trade, contrasting with the rally seen in precious metals and gas futures.
Technical Levels to Watch:
- Upside: The 200-day Simple Moving Average (SMA) at $79.62 remains a critical resistance level. Surpassing this, the 100-day SMA at $78.58 offers another resistance layer. An upward breach beyond these levels could open the path to $87.12.
- Downside: The pivotal support level at $75.28 is crucial to halt the current decline. Failing to hold this level could trigger an accelerated sell-off towards $72.00 and $70.00, potentially erasing all gains for 2024. Further decline could test the December 13 low of $68.00.
