Oil Prices Rise 4% This Week Amid Middle East Tensions and U.S. Election Uncertainty

Geopolitical factors are driving this bounce, says Priyanka Sachdeva, senior market analyst at Phillip Nova, “The oil price is a technical reaction to uncertainty”. She adds “Oil bulls are jumping at any headline of escalating conflict in the Middle East and the price gains look justified.”

We are producing more oil than we ever have in the history of this country and we are 4 times more energy independent than we were under Trump. The post-Covid recovery, the war in Ukraine, & Trump’s deal with OPEC to limit production until 2022 caused oil prices to rise.

— JKMcDonald (@JKMcDonald2) October 24, 2024

Israel launched airstrikes on Damascus early Thursday and the market reacted quickly. Yesterday’s strikes on Beirut’s southern suburbs were a warning sign of escalating tensions. With Hezbollah’s precision missile attacks on Israeli targets, the risk of bigger conflict is growing.

US Election and Fed Decisions Add to Uncertainty

The oil price volatility is also being driven by uncertainty ahead of the US presidential election on November 5 which could change US policy in the Middle East. Washington is making a last ditch effort for peace between Israel and Iranian backed groups like Hezbollah and Hamas. A change in US foreign policy could either increase or decrease tensions in the region and impact global oil prices.

The market is also sensitive to the Fed’s decision. The combination of election uncertainty and the Fed’s monetary policy has made for a very volatile oil market and prices will jump up and down even with no supply change.

US crude inventories rose 5.5m barrels last week according to the EIA. This was way above the 270,000 barrel increase expected but the market was mixed.

A higher inventory is usually bearish but ANZ noted in a client note that implied demand for crude was strong. On distillates, JP Morgan highlighted strong travel demand in Asia and steady drawdowns in distillate stocks in several major markets as the drivers of demand.

Crude Oil Futures Rise to $71.4 Per Barrel
• Markets shifted focus to Middle East conflict uncertainties.
• Investors monitored potential supply disruptions and Israel's response to Iran's missile attack.
• Oil prices pressured by higher-than-expected build in US stockpiles.

— Amit Gupta (@amit_gupta444) October 24, 2024

Technical Outlook: WTI Crude Oil on the Verge of a Breakout

WTI crude oil is at $71.66 and consolidating after the recent bounce. The immediate resistance is at $72.07 and a break above that could take prices to $73.10 and then $74.25. On the downside, the immediate support is at $70.80 then $70.40 and then $69.24.

The RSI is 59.95 which is neutral to bullish and the 50-day EMA is at $70.80. If prices stay above that, the bullish momentum could continue.

Points to Note:

• Geopolitical tensions in the Middle East and US election uncertainty is pushing up oil prices.

• US crude inventories rose 5.5m barrels more than expected but demand is strong.

• WTI crude oil has immediate resistance at $72.07 and could break out if that is cleared.

In summary, the combination of geopolitical risk, US election risk and steady demand is making for a messy oil market. Be cautious but watch for a breakout if the resistance is cleared.