WTI Hesitates At $70, Iran Deal Now In Focus
Matt Simpson | May 08, 2018 09:54
Oil is back in the spotlight after breaking above $70 a barrel and reaching a 3.5-year high. But with geopolitical risks lurking in the background, can it stay there?
The weekly chart has continued to defy the doomsayers by appreciating over 170% since the 2016 lows. Trading within a bullish channel and having now recovered over 50% of losses endured between 2014-2016, logic would point to further eventual upside from here.
The daily chart also backs up this view with a predominantly bullish trend structure, a recently added bull flag breakout and a 20-day average, which is acting as support. And let’s not forget the near-record bullish exposure from large speculators who retain their optimistic outlook for the oil market. Still, there are reasons to remain a little cautious.
Despite breaking to new highs, its failure to close above $70 warns of a potential fake-out. And that it produced a bearish hammer leaves room for a retracement from these highs at the very least. But in the context of the daily and weekly charts, this is a minor warning at best, so it may be geopolitics that creates a larger directional move from here.
Trump is expected to announce today whether Iran’s nuclear deal will be recertified. An openly vocal critic of the deal, Trump wants out and aides believe he will scrap it. And if it is to be replaced with fresh oil sanctions for Iran, we could see oil prices break markedly higher.
But then again, this is a president who has a history of verbally lashing out ahead of key decisions and, on some occasions, doing the complete opposite. Therefor oil could be vulnerable to whipsaws at current levels, and such a spike would put it on the backburner. But if oil prices are to stabilize and respect its bullish trend, perhaps $70 can be taken out with conviction after all.
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