Crucial day for Crude Oil Futures

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Crude oil futures, including both the Brent and WTI versions were seen trading higher last week after the geo-political tensions started rising as Saudi Arabia announced air strikes on Yemen in a bid to flush out the Houthi rebels. Oil futures rallied on the news as WTI Crude gained as much as 4%, or about $2.23 in gains, while the international Brent oil futures gained close to 5%, or about $2.78 in gains for that day (on 26th March). Prices however failed to hold on to their gains as both the WTI and Crude declined the following day erasing all the losses

Oil prices are expected to be volatile this week as the nuclear talks with Iran and the P5+1 (UN permanent members: US, Russia, China, UK, Germany, France) conclude today in Lausanne, Switzerland, with the focus being that an agreement could be reached by end of June.

The main risk to Oil prices stem from the fact that a favorable outcome of the nuclear negotiations with Iran could see the US lift some sanctions which could potentially include lifting the oil embargo and could result in a fresh supply of oil from Iran. The country already has a ready stockpile of oil for exports and could be seen as a negative for oil prices. Obviously, the additional supply is being seen as bearish for oil prices in general for both WTI and Brent versions.

The upside risks are however quite limited, as even if the current status quo continues, there won’t be much of a rally, going by how Oil prices erased their gains the second day despite the geo-political risks.

Furthermore, the rising US dollar is also likely to put downward pressure on oil prices for now, even if the Iran nuclear deal falls through. However, Oil prices could see a jump to the upside before settling within the normal range.

As seen from last week, the Crude oil, WTI versions ignored the continued rise in oil inventories, reported by the EIA, Department of Energy.

Crude Oil Technical Analysis

Crude oil enjoyed a brief rally after hitting a fresh low to 42.4. The rally saw Crude oil prices rise to 50.94 followed by a sharp decline. Price action is however still within the main support/resistance level which needs to be cleared in order for oil prices to decline and test the lows of 41.40.

Oil Daily - 31 March 2015

Figure 1: Daily Crude Oil Chart

The weekly charts for Oil however paint a bullish picture as we notice the sharp reversal pattern formed with last week closing bullish. However, the rejection near the highs of 51/52 is something which casts doubts.

Oil weekly analysis - 31 March 2015

Figure 2: Weekly Crude Oil Chart

Considering the sideways price action being seen since early January, with Oil trading within the highs and lows of 53.5 and 44.9, we could expect to see a break out soon or within a few weeks. The brief dip two weeks ago is indicative of a fake breakout to the downside, but we need prices to rally above 49.15 in order to anticipate a break out to the upside, that could potentially target the highs of $62.13. Alternatively, if a breakdown from 44.83 occurs, Crude oil would be poised to decline towards 36.18.

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