Crude Oil Price Update – Buyers Defending Major Support Zone as Iran Mulls Nuclear Deal Proposal

U.S. West Texas Intermediate crude oil futures are edging higher on Tuesday after recovering from earlier weakness. The price action suggests that shorts began to cover after the market failed to follow-through to the downside, following Monday’s steep sell-off. It also indicates the importance of a key support zone that has rebuffed sellers several times since mid-July.

At 11:56 GMT, October WTI crude oil is trading $89.71, up $0.86 or +0.97%. On Monday, the United States Oil Fund ETF (USO) settled at $72.91, down $2.07 or -2.76%.

Renewed Supply, Demand Concerns

Crude oil was under pressure at the start of the week as bleak economic data from top crude buyer China renewed concerns of a global recession and the market monitored talks on a reviving deal that would allow more Iranian oil exports.

Iran Nuclear Deal is the Wildcard

More oil could enter the market if Iran and the United States accept an offer from the European Union to revive the 2015 Iran nuclear deal. This would remove sanctions on Iranian oil exports and bring new supply to a tight market. However, we could see a short-covering rally if Iran passes on the deal.

First Look at Weekly Inventories Later Today

The American Petroleum Institute (API) will report on inventories at 20:30 GMT on Tuesday. The report is expected to show U.S. crude and gasoline stockpiles likely fell last week, while distillate inventories rose.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through $86.06 will signal a resumption of the downtrend. A move through $94.17 will change the main trend to up.

The major support zone is $88.26 to $81.85. This area stopped the selling on Monday at $86.29. It has the potential to become the third main bottom formed inside this zone since July 14.

The short-term range is $99.75 to $86.06. Its retracement zone at $92.91 to $94.52 is the nearest resistance.

Daily Swing Chart Technical Forecast

Trader reaction to the major 50% level at $88.26 is likely to determine the direction of the October WTI crude oil futures contract on Tuesday.

Bullish Scenario

A sustained move over $88.26 will indicate the presence of buyers. If this move creates enough upside momentum then look for a surge into $90.23. Overcoming this level could extend the rally into $92.91 – $94.52.

Bearish Scenario

A sustained move under $88.26 will signal the presence of sellers with the next key target the main bottom at $86.06. Taking out this level could trigger an acceleration into the major Fibonacci level at $81.85.