Most of the Oil market would like to see a showdown between the US and Iran however nothing positive seems to be gained out of tensions. In the previous days, Iran has strongly shown its frustration towards the US sanctions, through Iranian President Rouhani. Oil followers were strongly alerted once the news was out and several analysts were quick to assume Oil prices would be affected by the matter. The Iranian president used harsh words and somewhat spread some fear around the globe, as the reply from the US president was equally tough. We believe, the reason behind Iran’s warning could be the fact that many countries are now turning to alternative sources in order to import Oil. In other words, the world is now turning its back on Iran and is getting supply from Saudi Arabia, Russia or Iraq. The US is deliberately trying to diminish Iran’s Oil business with the outer world, as per their known disapproval of the Persian country’s nuclear activities.
Evidence for the proclaimed statement is Reuter’s report last month, affirming India had asked refiners to prepare for drastic decreases to zero levels for Iranian oil imports. However and quite paradoxically in India’s latest Oil import statistical data published, indicates Oil imports from Tehran persisted in the previous months April to June. The first Oil choice for India remains Iraq, but Iran has passed second overlapping Saudi Arabia regarding the export race to India. India remains among the giants in Oil consumer countries with demand reaching sky high levels. A significant note is that previously in the current year, Indian refiners decided to almost double imports from Iran due to free shipping and extended credit period on oil sales. This scenario could be now forced to change as sanctions will take effect on Aug. 6, following a 180-day adjustment period ending on Nov. 4. Furthermore, it is our opinion the world has much more to lose than to gain out of the current situation between the US and Iran. First of all, if Iran is removed from global supply completely, even with a 6 month adjustment period, global supply could be severely hurt. Some countries from Europe and Asia have shown hesitation towards the US’s plans because Iran has been a reliable supplier towards them. This sharp cut of reliable glut reserve, may have the effect of hiking Oil prices, raising them even higher than the prices have touched until now in 2018.
On a separate note, by closely reviewing Fed Chair Powel statement last week, he stated that Inflation in the US was seen increasing in the first half of the year, mostly because of energy prices. With that said and in accordance to Donald Trump publicly showing his dislike towards high Oil prices, now we can
reach the conclusion that petroleum prices strongly affect the US economy. Evidently ,higher Oil prices is something the US wants to avoid in all cases but may have to face if they are not willing to find a midpoint solution with Iran. Iran has also said it would retaliate by shutting down the Strait of Hormuz if
further actions are taken against them from the US.
Oil prices advanced more than 20 percent in 2018 with analysts citing it as a dangerous sign, adding it could lead to the next economic downturn. This has been the case for some periods in historic market analysis but could also belong to a more speculative viewpoint. Indeed, Oil prices have risen significantly since last year, however in our opinion prices remain moderate compared to years 2010 to 2014. OPEC and Russia have agreed to remain at moderate price levels, though the US has indicated it prefers better price regulation working together with Russia. If the market allows the commodity’s price to fluctuate between $68.0. to $71.00 per barrel and stabilize, the majority of Oil market makers could be satisfied.
If traders decide the commodity is worth purchasing, it could move up towards the $70.19 resistance level and break it, moving further near the $71.65 resistance barrier. This scenario could be supported if any retaliation measures are taken from Iran or if the US is to move further on sanctions imposed towards the Middle Eastern country.
If for any reason, the API weekly crude Oil stocks reading releases a surplus today, Crude Oil could enter a bearish movement and could move downwards towards the $66.58 Support level.
Please be advised , our Support level $68.10 has proven to be a vital one as Crude Oil has been trading back and forth that price since last week. We also see the case for the commodity to swing between our $70.19 resistance level and the $68.10 support level in a sideways movement, as the RSI indicator on the 4 Hour chart is on the reading of 50 indicating the market is somewhat puzzled of Crude Oils future direction.