Oil hits YTD peak. What are the risks now?

  • WTI crude oil has steadied around the $84.00 mark, supported by the 100-day SMA positioned above the 200-day SMA.
  • However, caution is advised due to nearing overbought conditions, with a potential pullback targets identified around $81.00.

Oil prices reached their highest level in seven months, partly driven by worries that escalating tensions in the Middle East could constrain supply. 

Iran has warned of a potential “serious response” against Israel following a targeted strike in Damascus that resulted in the deaths of two Iranian generals. This incident has raised concerns about a widening conflict in the Middle East, following over five months of the Israel-Hamas conflict in Gaza. 

Furthermore, Ukraine has launched a counter-offensive by targeting Russia’s oil infrastructure. Although the attacks have so far reportedly only caused minimal damage. Ukraine’s objective is to disrupt Russia’s main financial support for its invasion of Ukraine. 

Better-than-expected manufacturing purchasing managers’ index (PMI) reports from China and the US have also buoyed optimism in the oil market. Because of this, investors might anticipate increased demand in the manufacturing and industrial sectors of both countries. 

WTI has now found support just above $84.00. The 100 SMA is above the 200, potentially indicating that support is likely to hold. However, caution might be warranted as the market nears overbought conditions. If the $84.00 level fails to provide support, the subsequent target could be slightly below $81.00, coinciding with the 50% Fibonacci retracement level from the low in March to the recent peak. Alternatively, a less significant pullback might see buyers stepping in at the 23.6% or 38.2% Fibonacci levels. 

Import the BlackBull Markets Economic Calendar to iCloud, Google, or Outlook to get alerts direct to your inbox, enabling you to plan your positions in advance and seize trading opportunities.    

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