SINCE Oct 1, the West Texas Intermediate (WTI) crude oil price has climbed significantly, rising by more than US$8 per barrel. This sharp rise was triggered by escalating geopolitical tensions in the Middle East, notably when Iran launched around 200 missiles at Israeli targets overnight.
The growing speculation that Israel might retaliate by striking Iranian oil facilities has raised fears of a major supply disruption, potentially affecting 4 per cent of the global oil supply. Given the fragility of the region and its crucial role in oil production, such tensions could have far-reaching effects on global oil markets.
Despite a reported increase in US crude oil inventories, with data from the Energy Information Administration last week showing an increase of 5.8 million barrels (far exceeding the estimated two million barrels), this has not pushed prices lower.
The impact of the inventory gains was limited by the effects of Hurricanes Helene and Milton. These storms have driven up demand for petrol in the state of Florida, with about a quarter of fuel stations running out of supplies. This localised surge in demand became a counterbalance to the inventory surplus and pushed up crude oil price.
From a technical perspective, the WTI crude oil price has shown signs of a short-term bullish trend. The price has recovered above a previous horizontal support breakdown level at US$72 a barrel. This short-term bullish reversal price action is confluent with the breakout of a downward resistance line which has held since the start of July 2024.
Moving forward, the WTI crude oil prices will likely rebound further in the short term, pushing towards the next resistance level at US$80 a barrel. This would represent a retest of a long-term downtrend resistance line, and the previous swing-high resistance level formed in mid-August 2024.
In summary, while supply concerns and technical indicators suggest the potential for a short-term price rebound, the market remains sensitive to geopolitical risks and shifts in global economic conditions. The convergence of these factors could continue to drive volatility in the crude oil market, especially as the world grapples with geopolitical uncertainty and fluctuating demand.
Investors and analysts will closely watch for further developments in the Middle East and the release of new data, such as US inflation figures and China’s economic stimulus measures, which could influence global oil demand and prices.
The writer is research analyst, Phillip Securities Research
