Crude oil falls sharply after Iran attack spike
Fawad Razaqzada January 8, 2020 1:42 PM
After spiking again on the back of the Iran’s retaliatory attacks on air bases housing US forces in Iraq, gold and oil prices have now turned to their levels from the day before.
After spiking again on the back of the Iran’s retaliatory attacks on air bases housing US forces in Iraq, gold and oil prices have now returned to their levels from the day before, while stock index futures have also more than made up their overnight losses. Investors are waiting to hear from US President later on as he reacts to Iran’s attacks. If Donald Trump suggests they will take immediate military action against Iran then oil prices could spike higher again, while a more conciliatory tone could be good news for risk assets and bad for oil. So, crude oil will remain in focus as investors react to any further escalation in the US-Iran spat.
However, with Brent already surpassing $70 – hitting an overnight high of $71.28 – the upside potential is limited from here, in my view. Indeed, prices are likely to ease back sharply as the year wears on, because of a weak fundamental backdrop. In the short-term, the prospects of supply disruptions in the Middle East suggest prices could remain around current levels for a while. But soon or later investors will realise that the plentiful non-OPEC supply will more than make up for any short-term disruptions in the Middle East. If anything, these higher prices will encourage producers to ramp up output even more in order to make quick short-term profits. This will likely result in more supply than needed, causing prices to fall back – especially if there are no further escalations in the US-Iran situation. And while the OPEC+ group will do its best to keep global supply growth in check, non-OPEC crude supply looks set to increase further – not least in the US, which has become energy independent. This comes at a time of softer global demand growth and as alternative energy supply is on the rise while sales of electric vehicles are booming. The outlook for crude oil is therefore looking more subdued than suggested by current market prices.
But with the ongoing situation in the Middle East, calling the top is very tricky – has it ever been easy? Still, today’s large inverted hammer candle (yet to be completed) and the latest failure to hold above the key $70 hurdle suggests at least a short-term top may be in for Brent. Prices are still holding above some key support levels such as $67.50 but the bulls’ first line of defense around $68.50 has been broken. Together, these are early signs of a possible trend reversal. However, it is early days and if Brent were to go back above $70 and hold there on a closing basis, then the bearish idea would become invalidated.
Source: Trading View and FOREX.com.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.