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Brent Crude – Oil Slides Into Key Support as Geopolitical Risk Takes a Backseat

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  • Brent crude oil prices continue to fall amidst rumors of a Middle East deal and increased production in Libya.
  • US crude stockpiles are expected to have decreased, and insights from the Jackson Hole symposium could impact oil prices.
  • Technicals point to a key support are. Will we get a short term bounce in Oil prices?

Most Read: USD/CAD Teeters Near Critical Support Ahead of Canadian Inflation Data

Oil prices are continuing to fall in early European trading, approaching the August 5 low near the $75.00 mark. Brent crude experienced a drop of approximately 2.5% on Monday, fueled by rumors that a Middle East deal might be imminent.

On Monday, U.S. Secretary of State Antony Blinken announced that Israeli Prime Minister Benjamin Netanyahu had accepted a “bridging proposal” from Washington. This proposal aims to resolve disputes hindering a ceasefire agreement in Gaza, with Blinken urging Hamas to also come on board.

Last week’s analysis suggested that the potential for civil war in Libya could support oil prices. However, a recent Reuters report citing two engineers at the Sharara oilfield revealed that production has increased to about 85,000 barrels per day. This boost in production could alleviate concerns about supply disruptions and could be another factor contributing to the current decline in oil prices.

Last week’s trade and output numbers from China also appear to be on the minds of market participants. The print continued a growing trend of disappointing data from the world’s second largest economy. 

Inventory Data and Jackson Hole 

Oil inventory numbers will once again be in the spotlight, with a preliminary Reuters poll indicating that US crude stockpiles are expected to have decreased by 2.9 million barrels last week. However, given the significant discrepancy in last week’s data, the actual figures could differ substantially.

Later this week, the Jackson Hole symposium will capture the attention of global markets as Central Bank Governors from around the world convene. The most anticipated speech will be from Federal Reserve Chair Jerome Powell. Any insights on potential rate cuts from Powell could be viewed as a positive catalyst for oil prices.

Source: For all market-moving economic releases and events, see the MarketPulse Economic Calendar.  (click to enlarge)

Technical Analysis

From a technical perspective, oil is currently trading within a crucial support zone extending down to the August 5 low around 75.83. This significant support area on the daily chart could present a formidable challenge to break.

Should oil prices bounce from this support zone, they may encounter resistance around 79.00 before targeting the psychological level of 80.00. At this juncture, the newly drawn trendline is likely to come into play, followed by the resistance area at 81.58.

Conversely, a decline from the current price may find support at 76.50 before testing last week’s lows at 75.83.

USD/CAD Chart, August 20, 2024

Source: TradingView (click to enlarge)

Support

  • 76.50
  • 75.83
  • 75.00

Resistance

  • 78.97
  • 80.00
  • 81.58

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Zain Vawda

Zain Vawda

Market Analyst at OANDA
Zain is an experienced financial markets analyst and educator with a rich tapestry of experience in the world of retail forex, economics, and market analysis. Initially starting out in a sales and business development role, his passion for economics and technical analysis propelled him towards a career as an analyst.

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.
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