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Crude Oil Gains Limited Amid Easing Tensions in the Middle East
Chandan Gupta
Oil futures initially decline 3%, partially rebounding Monday. Geopolitical tensions impact supply outlook. Brent encounters technical barriers, but overall sentiment remains upbeat in the market.

Oil Market Gaps Lower

Light crude oil futures are displaying notable movement on Monday, starting with a sharp 3% drop, followed by a partial recovery. This volatile movement is being primarily influenced by global events and economic data releases.

Geopolitical Tensions and Supply Outlook

The oil market is currently sensitive to the ongoing geopolitical situation, notably in the Middle East and the Russia-Ukraine conflict. Brent crude saw a pullback from its five-month high after Israel’s decision to withdraw troops from Gaza. Despite this easing of tensions, the possibility of future conflicts involving Iran continues to add a layer of uncertainty to the supply outlook. Additionally, factors like OPEC+ production cuts and regional disruptions, such as those in the Red Sea, are crucial in shaping supply perceptions.

Technical Analysis and Investor Focus

Brent crude’s recent ascent to high levels now encounters technical resistance, indicated by its overbought status on the 14-day relative strength index. However, the market sentiment stays largely positive, supported by significant market indicators and increased investment in crude oil. Upcoming reports from entities like the US Energy Information Administration (EIA) and the International Energy Agency (IEA) are eagerly anticipated for deeper insights into the global oil balance.

Economic Data and Market Projections

The oil market is also reacting to expectations surrounding US inflation data, which could impact the Federal Reserve’s interest rate decisions. The blend of ongoing geopolitical concerns and potential supply limitations suggests a continued interest in the oil market’s direction. The short-term projection appears bullish, but it is subject to change based on the unfolding geopolitical landscape and key economic reports.

Short-Term Market Outlook

Considering the mix of geopolitical developments, OPEC+ production strategies, and current supply challenges, the short-term outlook for oil prices leans towards bullish. However, investors should be prepared for possible changes influenced by new geopolitical developments or economic data, particularly relating to inflation and interest rate paths.

Technical Analysis

Crude Oil Gains Limited Amid Easing Tensions in the Middle East_1
Light crude oil futures are in an uptrend, but today’s weaker price action has produced a new minor top at $87.63. A trade through this level will signal a resumption of the uptrend with October 20 top at $89.49 the next upside target.
The short-term trend will change to down on a trade through $80.30. Given the current price, there is room to the downside, but  change in the short-term trend is not likely. Additonally, any test of the 50-day moving average at $78.77 and the 200-day moving average at $77.77, will likely bring in another round of fresh buyers.