Crude oil outlook Brent tests 78 again as Israel Iran tensions escalate

Crude oil prices continue to be on the ascendency as the exchange of rockets between Iran and - for now - Israel continue. It is all to do with tensions in the Middle East raising concerns about supply disruptions, for otherwise the fundamental backdrop for crude oil outlook is far from bullish with the OPEC+ raising supplies and demand growth being weak.

Specifically, it is potential disruptions in the Strait of Hormuz that is driving prices higher right now.  In fact, it is something Iran has warned about – especially if the US gets involved. If Tehran closes this rout, through which about 20% of daily global oil consumption passes, this could send prices even higher – possibly in triple digits. Of course, one has to wonder whether things will get that bad. We could hopefully see a surprise de-escalation in the conflict and supplies might not be disrupted at all or by much. This makes it imperative that traders are nimble and extremely careful when it comes to managing risk, regardless of which direction they speculate on.

As the conflict continues, prices have remained largely on the front foot with shallow dips. The Brent contract was testing Friday’s highs of around $78.00 at the time of writing. WTI crude oil was also up sharply to just over $76 per barrel. For US oil, the bulk of the gains are clearly due to the same factors supporting Brent oil – namely, war fears. But let’s not forget that the EIA weekly report showed a massive 11.473 million barrel draw in US inventories. That sort of number usually should send oil prices higher. But the impact of it was of course diluted by Middle East headlines.

For Brent, key resistance is seen around $78.00. A break above that could see oil prices rise to $80.00, the next psychological round handle. Support comes in around $76.75, marking the high from the day before. Below that $75.00 is the next big level. If tensions de-escalate and we see oil drop below $75.00, then that could open the door for a drop to low $70s again.

Source: TradingView.com

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R