By Naeem Aslam
Oil prices continue to deflate while war tensions are very much anchored in place between Iran and Iraq.
There is no doubt that two groups of traders are currently moving the prices. One is moving prices to the upside on any war-related news, while the pros who have seen this saga many times, push prices back to the downside maintaining the view that if the war situation is real, we would be looking at completely different dynamics.
The question for traders is when Israel will attack Iran and if the attack will involve any oilfields as that would really impact the oil equations.
Crude oil prices have been experiencing volatile moves in the past few months as the initial attacks began.
Traders have been on the edge with the recent retaliatory attacks by Iran on Israeli soil changing the dynamics significantly as this was the first time that we saw Iranian missiles landing in Israel.
Tensions have been intense ever since, as traders believe that the situation could really get out of hand.
Expectations were that Israel would attack even more intensely. However, the fact that it is still in the planning stage has kept traders very much on the edge.
War and Price Action
Oil prices moved higher on Tuesday on the news that Israel is likely to attack Iranian energy resources. This is despite the fact that U.S. President Biden has publicly urged Israel not to attack any energy targets, as that would have much wider implications for the world economy, especially the US, with the elections just around the corner.
Traders are concerned that if Israel does attack Iranian energy sites, it could lead to a significant spike in oil prices worldwide. This uncertainty in the market has caused oil prices to fluctuate as investors weigh the potential consequences of such an attack.
With tensions escalating in the Middle East, traders are keeping a close eye on the situation and preparing for any potential market volatility that may arise.
The upward price moves in both WTI crude and Brent didn’t last long, although Brent did move above $80 a barrel.
On Wednesday, prices are trading well off those levels, as Brent is near $78 while WTI crude is near the $74 mark.
This volatility in oil prices is a constant reminder of the fragile nature of the world energy market. Investors are bracing themselves for any sudden shifts in supply and demand that may result from geopolitical tensions.
As uncertainty persists, market participants remain vigilant and adapting their strategies to navigate through the unpredictable landscape of the oil market.
From a technical perspective, WTI crude oil continues to trade below the 200-day SMA on the daily time frame, which is a concern for bulls as they strongly believe that if the price was going to move higher, we should see the price moving above this SMA.
The bears have their own strong belief, that prices are likely to remain under their control as long as the price doesn’t move above the $80 mark.
From a fundamental standpoint, the ongoing tensions in the Middle East and the potential for disruptions in oil supply continue to keep market participants on edge.
The recent OPEC+ agreement to gradually increase production levels has also added to the uncertainty surrounding future price movements.
Naeem Aslam is Chief Investment Officer at Zaye Capital Markets.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Zaye Capital Markets.