Oil is falling in price after the aggressive bounce at the end of last week that sent Brent to over 6% weekly growth.
-Black gold retreats as Iran signals progress in diplomatic talks in Gaza. -Trading volumes remain subdued due to the Lunar New Year holidays in China.
At the start of the new week, Brent fell 1.2% to below $81.2. The downgrades come after Iran’s foreign minister noted that the Israel-Hamas conflict could be moving closer to a diplomatic solution. Iranian President Hossein Amirabdollahian held talks in recent days in Beirut, including with high-ranking Hamas officials. “Developments in Gaza are moving towards a diplomatic solution,” he said, without offering any other details. Traders took this as an indication of easing geopolitical tensions.
-Military actions in the Gaza region continue, which keeps oil declines modest, at least until there is a clearer indication of the development of diplomatic relations.
Oil has traded in a wide range of around $8 for most of this year. The generated geopolitical risk is offset by concerns about global supply/demand as the economy in China (the second largest oil consumer) is still unable to recover from the Covid lockdowns. Goldman Sachs points to the growing number of EV car purchases as a risk to China’s oil consumption.
IN FOCUS DURING THE CURRENT WEEK – the monthly report of OPEC /Tuesday 2:00 p.m./ and the report from the International Energy Agency /Tuesday 11:30 p.m./ which will be key for the short term direction /excluding the possibility of the potential for tension escalation, which is bullish on oil/.
THE TECHNICAL PICTURE
-Brent retreats, failing to hold above 65MA currently heading for a more serious test of the 38.2FIBO of the main Short.
-The $81-$80 zone will be key in determining the Short term direction. A successful hold above $80 will warrant an extension of the bullish momentum.
-Support for oil may also come from the CPI release in the USA /Tuesday 15:30/ which may weaken the dollar if the data confirms analysts’ expectations of a decline in consumer inflation.
Alternatively: A break and close below $80 will increase sell pressure, with the trade moving to the 200MA at the bottom of the corrective long channel and 23.6FIBO.
Head Dealer Alexander Alexandrov