Crude Spike Proves Short-Lived but the Middle East Remains on Edge

By:

Published: Jan 7, 2020, 14:05 UTC

The U.S. attack which killed a top Iranian general has caused volatility in the oil markets. Crude soared at the start of the week, but has quickly leveled off. What's next?

Crude is trading sideways in Tuesday trade. Currently, U.S. crude is trading at $62.78, down $0.06 or 0.10%. Brent crude oil futures are trading at $68.28, down $0.13 or 0.19%.

Investors on Edge After U.S. Strike

The New Year has started with plenty of activity in the markets, as tensions have soared in the Middle East. On Friday, a U.S. airstrike killed Qassem Soleimani, a senior Iranian military commander. The killing has shaken Iran, and the regime has promised to retaliate against the United States. In turn, U.S. President Trump has said that an Iranian attack on U.S. interests would draw a severe response.

Although the markets are clearly jittery and the spike in oil prices was to be expected, this could well be a reflex move due to geopolitical uncertainty. In September, U.S. crude soared over 12% after an Iranian attack on a Saudi oil terminal. These gains were erased just two weeks later.

Middle East oil is less important to the United States than it was 5 or 10 years ago, as the country has switched to a net exporter of oil. This means that the fallout from the U.S. strike could prove to be temporary, provided that the situation does not escalate with further clashes between the U.S. and Iran. Given the overwhelming military superiority enjoyed by the U.S., the Iranians will have to tread carefully, especially when dealing with an unpredictable Donald Trump.

Technical Analysis

Crude broke through some resistance levels on Monday, but could not consolidate these gains. Currently, there is immediate resistance at 63.25. Above, there is resistance at 64.20. On the downside, we find support at 62.25, followed by support at 61.50.

WTI/USD 1-Day Chart

About the Author

Kenny Fisherauthor

Kenny is an experienced market analyst, with a focus on fundamental analysis. Kenny has over 15 years of experience across a broad range of markets and assets –forex, indices and commodities.