WTI back below 4-HR EMA, Iran risk dialled-down
- WTI back below the 4HR 200 EMA, losing sight of $60 handle.
- Trump is not about to start a war with Iran, but disruptions in the area to keep upside underpinned.
West Texas Intermediate crude prices moved broadly lower Monday while new U.S. sanctions on Iran have failed to support price. Trump announced new sanctions against Iran, something that the Trump administration was not necessarily in direct response to the attack on the military drone last week. However, the administration is taking aim at Iran's Supreme Leader, Ayatollah Khamenei, albeit seeming to be hesitant to engage in war, which is giving some relief to risk on Monday - Although Trump's message to Iran is clear that the US will not allow Iran to pursue a nuclear weapon and the market is increasingly recognizing the risk of a geopolitical miscalculation that could result in a serious disruption near the world's most important chokepoint for oil markets.
Elsewhere, although in the same vein, analysts at TD Securities note that risks to oil supplies are growing in Libya and Venezuela, while geopolitical tensions in the Gulf could also lead to disruptions for Aramco, with Houthi missiles increasingly attempting to target Saudi Arabia's oil facilities.
"While the geopolitical backdrop has helped to firm prices, we suspect that the FOMC's dovish meeting catalyzed the reversal in prices, particularly ahead of OPEC's upcoming meeting, where an extension of the cut is likely in the bag. Reflecting the waning downward momentum in prices, the bar is low for CTAs to buy Brent crude, although the implied flow would be only marginal."
Capped at the weekly 20-Experiential Moving Average, WTI has bowed out of an advance towards the 200-D EMA and has stumbled below the 4HR 200 EMA in recent trade. If the price can't sustain a bid, bears can target back down to the 200 weekly EMA (last week's low) and the 61.8% Fibo. A full breakdown opens prospects for a correction to back towards the14th Jan 50.41 low and then the 26th November lows at 49.44. On the upside, a break above the 200-D EMA, bulls can target through the 30th May highs of $59.67 and be back on course for the $60 psychological level.
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