- Oil prices are rising due to geopolitical tensions in the Middle East, particularly the potential for an Israeli attack on Iranian oil facilities.
- Despite increased Libyan oil production, prices continue to climb, indicating market sensitivity to potential supply disruptions.
- Experts predict that Brent crude could reach $90 or even $100 per barrel if Iranian oil exports are disrupted.
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Oil prices extended gains in early European trade to build on last week’s stellar rally. Fear around the Middle East continues to be at the center of the rally as the potential for supply disruption remains in play.
Tensions in the Middle East have failed to calm down over the weekend as markets continue to brace for an Israeli retaliation to last week’s Iran missile attack. These concerns have been compounded by growing calls from many world leaders and Israeli politicians that a strike against Iran should target its Oil facilities.
While such a move may seem wise to blunt the Iranian regime from a finance point of view it would surely have severe consequences globally. This could lead to an extreme spike in Oil prices with many fearing Iran could go further and block the strait of Hormuz.
Strait of Hormuz: Is a vital waterway that is exceedingly narrow and connects the Persian Gulf to the Arabian sea. It is estimated that around 20-25% of the World’s Oil passes through here.
According to widespread reports, US President Joe Biden has been trying to convince Israel against an attack on Iranian Oil infrastructure. Market participants and consumers alike will no doubt be hoping such an attack can be avoided given the potential knock on effects on the global economy.
Below is an image of some key areas in Iran relating to its Oil infrastructure.
Source: LSEG
Libya Production Resumes
The political situation in Libya appears to have been resolved with the North African nations exports soaring to above 1 million barrels per day in output, Reuters reports. The nation’s eastern government, which initially halted output, has lifted the embargo, allowing all fields and export terminals to resume operations.
It is telling that despite such a significant amount of supply returning to the market Oil prices continue to rise. This should be seen as a sign of the potential rally following any further attacks from either side that threatens escalation.
According to a Goldman Sachs note by head analyst Daan Struyven, Brent could reach $90 if Iranian exports are disrupted, Bloomberg reports. I would argue that such an attack depending on the scale could push Brent closer to the $100/barrel mark.
Looking ahead to the rest of the week and as always Oil inventories will be in focus once more. Although inventory data is key, similar to last week the data might be overshadowed by the geopolitical developments and thus the actual impact and market reaction may be muted.
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Technical Analysis
From a technical perspective, Oil continued its rise this morning following its steepest weekly jump since early 2023, with gains of nearly 10% last week.
Oil prices broke above the long term descending trendline last week and advance toward the psychological $80 a barrel mark. On the daily chart below we can see prices have run into a key confluence zone which rests just around the 80.00 mark where the 100-day MA also rests. This has seen oil prices take a slight breather during the US session.
Any move to the downside faces the potential of a knee jerk reaction should any news filter through regarding further escalation in the Middle East conflict. The size and speed of the rally means a retracement would normally be forthcoming and yet the fundamentals in play make such a move likely but very unpredictable.
Immeidtae resistance rests at the 100-day MA at 80.180 with a move higher bringing another area of confluence onto focus around 81.90.
Conversely, a pullback here may find support at the 79.00 handle before the 76.35 handle comes into focus.
Brent Crude Oil Daily Chart, October 7, 2024
Source: TradingView (click to enlarge)
Support
- 79.00
- 76.35
- 75.00 (key area of confluence)
Resistance
- 80.18
- 81.94
- 83.00
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Zain Vawda
He has spent the last 3 years in an analyst role honing his skills across various financial domains, including technical analysis, economic data interpretation, price action strategies, and analyzing the geopolitical impacts on global markets. Currently, Zain is advancing in obtaining his Capital Markets & Security Analyst (CMSA) designation through the Corporate Finance Institute (CFI), where he has completed modules in fixed income fundamentals, portfolio management fundamentals, equity market fundamentals, introduction to capital markets, and derivative fundamentals.
He is also a regular guest on radio and television programs in South Africa, providing insight into global markets and the economy. Additionally, he has contributed to the development of a financial markets course approved by BankSeta (Banking Sector Education and Training Authority) at NQF level 6 in South Africa.
