Middle East Impact
Oil prices are showing better signs of stability on Monday following the heavy selling we saw across last week. The market remains highly sensitive to developments within the Middle East conflict. News that Israel has killed the leader of Hamas has raised the prospect of the war de-escalating or potentially ending soon. However, with Israel’s offensive in Lebanon gathering pace, and the threat of greater conflict with Iran, oil prices remain vulnerable to fresh upside spikes on any negative news flow.
US Dollar Focus
Away from geo-political risks, traders are also monitoring developments with the US Dollar. Continued strength over recent weeks has been a major headwind for oil prices. If the Dollar continues to rise, oil prices are likely to struggle to recover much near-term. A hawkish shift in the market’s pricing of the Fed rate path has seen USD rallying firmly. Looking ahead, traders will be monitoring pricing and incoming labour market and inflation data. If there is any further hawkish shift, oil prices look vulnerable to a fresh drop lower on any further USD rally. Alternatively, if we see US data deteriorating and the Dollar start to weaken, this should help oil prices regain better levels.
Factory Readings on Watch
Looking ahead this week, traders will be watching the latest round of US, UK and eurozone PMIs. Weakness in the industrial sector has been a red flag for oil demand. If factory readings show fresh weakness this week, oil prices are likely to soften again.
Technical Views
Crude
The sell off in crude has stalled for now into a test of the 67.45 level, the bear channel lows and the rising trend line off YTD lows. This is a key support area for the market which bulls need to defend to prevent a deeper drop towards 63.83 next.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.