Crude oil prices are in the spotlight this week as the deal between the United States and Iran is tested. Brent, the global benchmark, ended the week at $73.6, down sharply from year-to-date high of $119.4. WTI has moved below the key support level of $70.
US and Iran exchange strikes
There are signs that the ceasefire between the US and Iran is in trouble as the two countries exchanged blows this weekend. This crisis started after Iran launched strikes against a Singapore-flagged oil tanker on Friday.
The US responded by hitting some key Iranian targets, a move aimed at pressuring Iranians. Iran responded by hitting another ship and launching strikes towards Bahrain.
At the same time, Hezbollah, the Iranian-backed group, rejected a ceasefire agreement between Israel and Lebanon as it has done in the past. As such, there is a possibility that fighting between the two sides will continue, putting the ceasefire agreement at risk.
Therefore, a resumption of war will have a major impact for energy prices as it will happen at a time when inventories are in a strong downward trend. In a press conference explaining his deal with Iran, Trump justified it saying that he believed that inventories would reach distress levels in July. This is in line with what many experts, including oil executives warned him.
On the positive side, there are signs that Trump does not want to return to a full-blown war. Media reports suggests that he has gotten bored of the war and he is concerned about its impact on the upcoming midterm elections.
He has also watched his approval rating plunge in the past few months, while inteligence reports showed that the US was suffering from a major weapons shortage.
As such, there are signs that he will do his best to avoid a return to war despite pressure from Republican allies and Israel.
Oil prices will continue falling in the near term as more ships continue passing through the Strait of Hormuz. It is estimated that over 20 million barrels are passing through the Strait a day.
Ukraine intensifies strikes against Russia
Another thing moving crude oil prices is that Ukraine has intensified its attacks against Russia in the past few days. In a statement, Ukraine’s Vladimir Zelensky said that the country would boost its attacks in the next 40 days.
Ukraine has focused its attacks on key Russian assets like refineries, weapons manufacturing plants, and targets in Crimea. As a result, these attacks have led to a significant disruption of Russian oil exports, which Ukraine hopes will put more pressure on Putin.
Brent crude oil price analysis
Brent oil prices chart | Source: TradingView
The daily chart shows that Brent crude has been in a strong downward trend in the past few months. It fell to $73.6 from the year-to-date high of $119.75.
It has dropped below the 61.8% Fibonacci Retracement level, while the 50-day and 100-day moving averages have formed a bearish crossover. At the same time, the Relative Strength Index and MACD indicators have continued moving downwards.
Therefore, the path of the least resistance is downwards, with the next key target being at $65. A move above the key resistance at $80 will invalidated the bearish outlook.
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