By Crude oil prices continued their recent downward trend as geopolitical risks eased during the weekend. The West Texas Intermediate (WTI) crashed by 4.35% to $68.50, while Brent, the global benchmark, dropped by 4.57% to $72.3. The two oil benchmarks have remained in a deep bear market after falling by over 21% from the highest point this year.
Israel and Iran’s tensions ease
Crude oil prices dived after Israel launched a major missile attack against Iran, its long-term enemy.
Israel launched a pre-dawn attack focused on Iran’s military sites, including locations that were used to manufacture missiles that hit Israel a few weeks ago.
The retaliation killed four people in Iran. While it was a strong retaliation, analysts believe that it was a more modest one.
The other options would have led to a big escalation since Israel was considering attacking Iran’s nuclear and oil infrastructure, which would have led to more retaliations.
The more modest retaliation is most likely because of the substantial pressure from the United States, which has been working to prevent the situation from escalating because of the upcoming election.
Iran will likely not react aggressively to this attack because its economy is not doing well, with the unemployment rate rising gradually.
In a statement, Iran’s Supreme Leader, Al Khamenei, said that the attack should not be exaggerated or downplayed. He did not expressly call for a retaliation, saying that the military would consider the response.
Therefore, the ending of the retaliatory attacks removes one of the most important bullish cases for crude oil in the past few weeks.
Striking oil infrastructure would have affected Iran’s oil production and shipments, which are substantial because of the volume it ships every day.
Data shows that Iran is one of the top crude oil exporters, producing over 4 million barrels a day. It has a 4% market share, meaning that disruption would have an impact on flows.
Striking Iran’s nuclear sites would have a similar impact by increasing tensions in the Middle East.
Meanwhile, the war in the Middle East is continuing as Israel continues battling Hamas and Hezbollah. This war has had a limited impact on the energy sector for now.
🚨 Breaking: All Iran’s 🇮🇷 four remaining S-300 air defense systems were destroyed in Israel’s 🇮🇱 attack. They were protecting nuclear and oil facilities.
Source: NY Times
US election impacts
The next important catalyst for Brent and West Texas Intermediate crude oil is next week’s general election in the US, in which Donald Trump will face Kamala Harris.
Official polling data shows that the election will be highly close. Data by the New York Times shows that Harris leads by 49% nationally against Donald Trump’s 48%.
The two are neck-on-neck in most swing states like Nevada, Arizona, Georgia, Michigan, and Wisconsin. If the results match the paper’s poll, it means that Harris would win 276 electoral college vote against Trump’s 262.
However, the prediction market shows that Trump has a higher chance of winning the election.
A Kamala Harris presidency would be a continuation of Joe Biden’s policies, meaning that its impact on oil prices will be limited.
On the other hand, a Trump win would have some immediate impact on oil prices. One of his policies is drill, baby, drill. This is where he has pledged to deregulate the industry and encourage more production.
In reality, however, the US president has a limited impact on oil prices, as we have seen during the Biden presidency.
Trump would be bad for the oil market for two reasons. First, by encouraging production, it would push prices lower in the long term. Also, such policies would push Saudi Arabia to increase production in a bid to boost its market share.
Second, Trump’s trade wars would have an impact on the global economy, which would also affect demand. Last week, the IMF even downgraded the economic outlook, citing the risks to a Trump election.
Crude oil price has also dived as the impact of the recent Chinese stimulus faded. This explains why Chinese stock indices like the Hang Seng and the Shanghai Composite have moved into a deep bear market after falling by over 20% from their highest levels this year.
WTI crude oil price forecast
Crude oil chart by TradingView
The daily chart shows that the West Texas Intermediate (WTI) dropped sharply on Monday, reaching a low of $68.85, its lowest level since October 1. Brent, the global benchmark, has also done that.
WTI has remained below the important support level at $72.61, its lowest point on June 4. It also remains below the 50-day and 100 day moving average, pointing to more downside.
Therefore, the two will likely continue falling, with the WTI targeting the key support at $65.48, its lowest level on September 10th. A break below that level will point to more downside soon. If this happens, Brent will also continue falling to the next point at $70.
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