Crude oil
Crude oil prices surged early on Friday’s trading on geopolitical tensions. WTI crude oil CFDs rallied from their open price of $61.18 to $63.83 within a couple of hours after news that the US attack in Baghdad killed Iranian General Soleimani. Then, during the New York session the drop in US crude oil inventories helped the commodity sustain its gains. WTI crude oil closed at $63.05.
The commodity is one of the most sensitive assets to geopolitical tensions. For one, Iran is one of the largest producers of oil. And more importantly, most of the world’s oil supply comes from the Middle East. The worst case scenario is for an all out war to happen between the two countries which will not only result to losses on financial markets but also to casualties. At the very least, heightened tensions in the region may force a disruption in production and on supply routes. Both of which will only increase the price of oil.
Over the weekend, a replacement for General Soleimani has been announced. His long-time deputy officer Esmail Ghaani has been tasked to lead the powerful Iranian Quds Force. In an interview, he has vowed to avenge the deceased general. There are speculations that US bases in Baghdad and neighboring countries could be targeted by Iran as it retaliates. The country has also announced an $80 million bounty for the head of US President Trump.
Aside from risk aversion, the Energy Information Administration (EIA) reported a bigger-than-expected drop in oil supplies kept in storage by commercial firms. It was anticipated that there would be a 3.1 million-barrel decline in the week ending on December 27. However, it turns out that the drop was much bigger at 11.5 million barrels. This news was also bullish for crude oil because it indicates that the US demand for oil will soon pick up.
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On the hourly time frame, we can see that after gapping up, crude oil prices seem to have relaxed. The commodity may have encountered minor resistance at $64.50. Negative developments between the US and Iran could again spark risk aversion and push prices to new multi-month highs beyond $64.71. The next resistance level could be at oil’s April 2019 highs at $66.55.
On the other hand, if efforts to address issues diplomatically work, risk aversion could subside. US Congress is reportedly planning to limit Trump’s military actions against Iran. If this does happen, we could see crude oil prices pare some of its gains back to the 38.1% Fib level (when you draw from the low of January 3 to this morning’s high). This price, around $63.76, also coincides with the rising trend line from connecting the lows of January 2 and January 3.