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

Oil rose 1% on Thursday, almost wiping out the previous day’s losses as Middle East tensions flared up again and boosted demand for crude.

This comes despite mixed US fuel inventory data and just weeks before the US presidential election which could have big implications for global energy markets. So far this week oil is up 4%, after last week’s 7% fall due to China demand concerns and Middle East risk receding.

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.”

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.

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.

Oil Price Chart - Source: Tradingview

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.

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Arslan Butt
Index & Commodity Analyst
Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics.His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker.His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.
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