The recent moves in oil will have been disappointing for those who expected to see a sustained bullish rally following the Hamas attack on Israel and its subsequent attacks. The setup looked increasingly promising two weeks ago when both US crude (WTI) and Brent crude rallied around 5% on Friday the 13th leading into a weekend of uncertainty regarding how geopolitical events would unfold. Buyers then managed to regain control the following week, but the momentum was short-lived as sellers were piling in by the close of business on Friday the 20th.

This week the path of least resistance has clearly been to the downside. WTI is just shy of dropping below $83 from $88 at the start of the week. The RSI - which failed to get anywhere near overbought conditions when the rally was gaining steam last week – has now ventured back below the mid-line (50) suggesting that buyers may find increased resistance if they try and turn things higher once again.

The pullback is not a complete surprise. Before the tensions in the Middle East erupted, oil was already pulling back from recent highs, with WTI having dropped over 14% within the first few days of October. Prior to that, we saw a rally that broke out at the end of June – after spending most of the first part of summer confined to a sideways range below $75 - peaking at 10-month highs just above $92 on the last few days of September. The reason for this was planned supply cuts from Saudi Arabia and Russia coupled with declining inventories in the US which would lead to a tight supply market in the latter half of the year.

But throughout this time, it seemed like prior concerns about weaker demand had been put aside. Now, these seem to be back on the table and oil has once again seen some reaction to the latest economic data. Weaker PMIs in Europe on Tuesday morning intensified the losses as concerns about future demand for crude in the region weigh on sentiment. Meanwhile, concerns about supply disruptions in the Middle East eased as world leaders intensified their efforts to contain the conflict and deliver humanitarian aid to the heavily hit Gaza Strip, removing another layer of bullishness in oil.

It's likely that the price will remain sensitive to headlines about the Middle East but also to the latest economic events to unfold, including the BoC and ECB meetings, today and tomorrow afternoon respectively, and the US GDP and PCE data released on Thursday and Friday.
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