Oil was in the red in early trading on Monday after it lost the momentum brought by concerns over increasing US military activity in the Middle East. At 10:10 GMT, West Texas Intermediate (WTI) was trading at $71.92 per barrel, down 0.58% from the day’s opening price. The commodity had shown signs of reversing losses incurred last week on the back of a potential pause in the Israel-Hamas war, but that seems to have fizzled out.
The US has increased its military strikes against Yemen’s Houthi rebels and seized some 520,000 barrels of oil linked to Iran. Furthermore, concerns are rising about a potential rise in haulage bills for oil passing through the Red Sea as shipping companies take precautions against potential attacks.
However, the market seems to be inclined towards a stronger US dollar, as the situation in the Middle East seems relatively stable-for now. The Fed will likely maintain high interest rates for longer after last week’s higher-than-expected US jobs report. This has given the dollar armour against other currencies, and will continue exerting more downward pressure on crude oil prices. Furthermore, data on US oil inventory will come out on Tuesday, and a rise in the stockpiles for the second consecutive week could bring the prices lower.
Barring major shifts in the geopolitical scene today, we are likely to see the continued downtrend by oil. Tomorrow, however, will offer the first glimpse of what the Fed might do next as the market hears from Fed Member Loretta Mester. In the face of slowing industrial activity in China, the demand for oil is likely to slow down significantly. Nonetheless, the multiple factors at play means that we could begin to see a whipsaw during the week.
The RSI is bearish, signaling a likelihood of further declines. The downward momentum will likely see crude oil price resistance established at $72.70, with support at $71.30 and the second support at $70.75. However, a breach above $72.70 could build the momentum to target $73.70, possibly going as high as $74.40.
This post was last modified on Feb 05, 2024, 11:30 GMT 11:30