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Trade Of The Week: Oil surges on Middle East tensions

Oil up
  • Oil surges over 5% on geopolitical uncertainty
  • Middle East tensions fuel concerns over crude supplies
  • Keep eye on OPEC/EIA monthly report
  • Brent gaps higher but still under pressure on D1 chart
  • Keep eye on $89.70 dynamic resistance level 

Oil prices were in sharp focus on Monday after surging on geopolitical tensions following the weekend attack on Israel.

Brent initially soared more than 5%, recovering a chunk of last week's hefty losses on fears that Hama’s surprise attack on Israel may deepen tensions across the Middle East. Given how this negative development is likely to fuel concerns over crude supplies, oil bulls could jump back into the game.

Taking a quick glance at the technical picture, Brent remains under pressure on the weekly charts. However, a strong weekly close back above the $89.70 level may provide an opportunity for bulls to re-challenge $95.00.

This promises to be a wild week for oil and here are 3 reasons why:

     1. Middle East tensions

The developments over the weekend have sparked geopolitical uncertainty and escalated tensions in the Middle East, home to almost a third of global oil supply.

While neither Israel nor Palestine are major oil producers, there are concerns that the conflict could spread through the region – resulting in major supply disruptions. The risk of the conflict evolving into a proxy war, involving the US and Iran has also raised the risks of more supply shocks amid tightening of sanctions. It is worth keeping in mind that Iran is not only a supporter of Hamas but one of the world’s largest oil producers.

  • Should tension continue to escalate between Israel and Palestine, this could support oil prices as geopolitical uncertainty fuels fears around oil supply.
  • Any signs of easing geopolitical tensions may offer an opportunity for oil prices to close the gap created over the weekend.

     2. OPEC/EIA oil monthly report

Investors will be keeping a close eye on the monthly oil market reports from both the International Energy Agency (EIA) and the Organization of Petroleum Exporting Countries (OPEC) on Thursday.

It is worth noting that oil prices had tumbled aggressively this month, shedding over 8% before the attack on Israel. The global commodity was pressured by concerns over higher interest rates and slowing growth dampening the demand outlook. The upcoming monthly reports from OPEC and EIA will be scrutinized for fresh insight into the outlook for crude oil as the final quarter of 2023 gets underway.

  • While the oil market reports have the potential to influence prices, crude is likely to remain heavily influenced by geopolitical risk this week.

     3. Technical forces

After concluding last week on an aggressively bearish note, Brent has gapped up with prices smashing into the 50-day SMA. Despite the sharp move to the upside, bears remain in a position of power below the $89.70 dynamic resistance level.

  • Sustained weakness below $89.70 could encourage a decline back towards $85.20 and the 100-day SMA at $83.00.
  • Should prices experience a strong breakout above $89.70, this may open the doors towards $92.80 and $96.10, respectively.


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