- Brent Crude oil prices have surged by approximately 3% following escalated tensions in the Middle East, notably between Israel and Hezbollah, alongside a production halt in Libya.
- Libya’s internal power struggle has led to the closure of oil fields by the Eastern-Based Government, affecting the country’s output of around 1 million barrels per day, further supporting higher oil prices.
- Technically, oil is testing critical levels, with a need for a daily candle close above 81.58 to alter the bearish trend, while geopolitical developments are likely to dominate over technical factors and inventory data this week.
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Oil prices picked up where they left off last week, rallying aggressively to trade up around 3% at the time of writing. Crude oil prices gapped higher after the weekend which saw Israel and Hezbollah trade rocket fire and attacks.
The increase in tension has stoked fears of a wider regional conflict which threatens oil production and supply from a host of countries. The news in itself will not be welcomed as Central Banks appear to finally have inflation under control. A drawn out conflict in the Middle East could have a knock on effect on inflation as oil prices continue to rise.
Last week’s analysis suggested that the potential for civil war in Libya could support oil prices. A Reuters report appeared to have allayed those fears however, Libya’s Eastern-Based Government announced the closure of all oil fields this morning halting production and exports.
The dynamics in Libya are complex to say the least as the recognised Tripoli Government does not control the oilfields. The oilfields are controlled by the Benghazi government as the power struggle over control of the Central Bank and oil revenue continues.
Libya’s Sirte Oil Company issued the following statement “We will start partial reduction in production due to continued pressure, we call on authorities to intervene to maintain production levels.” Current output from Libya is around 1 million barrels per day which if offline could keep oil prices moving higher.
For now geopolitical risk will be the driving force when it comes to oil prices. The developments in the Middle East are also threatening to spillover and this could add to the current production and supply concerns.
Inventory Data
Oil inventory numbers will once again be in the spotlight, following last week’s positive print market participants will be keen to gauge whether that was a once off.
As summer comes to an end in the US and Europe, markets will also be paying attention to any declines in demand. The rate cut narrative should lead to increased demand in the months ahead and thus production and supply concerns are less than ideal.
Source: For all market-moving economic releases and events, see the MarketPulse Economic Calendar. (click to enlarge)
Technical Analysis
From a technical standpoint, oil has risen approximately 3% and is testing the descending trendline. Despite the strong rebound, the general trend on the daily chart remains bearish. A close above 81.58 on the daily candle is required to signal a shift in the trend structure.
Should the daily candle close above the trendline, it could pave the way for a move towards the 200-day moving average at 82.54. Surpassing this level may lead to a retest of the 100-day moving average at 83.72.
On the flip side, if prices decline from their current level, support can be found at the psychological level of 80.00, followed by the 78.97 mark. This week, geopolitical developments will likely play a key role in determining the direction of oil prices, overshadowing the impact of technical factors and inventory data.
Brent Crude Oil Daily Chart, August 20, 2024
Source: TradingView (click to enlarge)
Support
- 80.00
- 78.97
- 77.00
Resistance
- 81.58
- 82.54
- 83.72
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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.
