Oil News: Weekly Oil Outlook—Geopolitical Risk Sets Tone for Crude Oil Futures

Iran Talks Keep Crude Oil in Holding Pattern

U.S. West Texas Intermediate (WTI) crude oil futures finished lower last week. There are still concerns over a supply disruption with the U.S. Navy sitting in the Strait of Hormuz, but some buyers lightened up and new money was scarce. Fueling last week’s neutral stance were talks between the United States and Iran, mediated by Oman.

Last week, Nearby Light Crude Oil Futures settled at $63.55, down $1.66 or -2.55%.

The Talks Can Go Either Way

The talks between the two nuclear powerhouses can go either way, and that’s what the price action is showing us on the weekly chart. The talks were described as “good” by an Iranian diplomat, according to Reuters, which is probably the reason for the price cap. If they continue to talk and a formal agreement is drawn up, then prices could retreat into support.

However, there is always the risk that talks collapse, leading investors to begin pricing in a possible military strike by the U.S. Navy. Furthermore, Iran could retaliate by attacking U.S. interests around the world, or even jamming up the Strait of Hormuz, which is responsible for 20% of global supply.

The Supply Risk: $10 Up or $10 Down

It all comes down to supply at this time. The upside potential is clear if the talks collapse, the U.S. attacks, Iran retaliates, and the Strait of Hormuz is blocked. We could be looking at a $10 surge in prices if everything lines up as described.

On the downside, we could see a $5.00 to $10.00 collapse if Iran and the U.S. agree to terms and the U.S. Navy starts to pull out of the region.

Other Factors in Play

Other factors that could influence the price action include the U.S. Dollar, which is going to be moved by labor market data, Fed expectations, and overall market sentiment. A cheaper dollar could lead to increased demand for dollar-denominated crude oil, while a strong dollar can cap demand.

Traders will also be watching U.S. inventory levels after a bigger-than-expected decline provided surprise support last Wednesday. Of course, any news on Russian supply can also be a source of volatility.

Technical Outlook: Range-Bound With Upside Bias

Technically, we’re looking at a potentially range-bound trade with a bias toward the upside. That’s the war premium talking.

Heading into the new week, we have a market that is trading on the strong side of the 52-week moving average at $60.62 and a 50% level at $60.59. That’s the support cluster propping up the market, driven by the supply disruption premium.

The market also straddled a long-term 50% level at $63.62 all week before closing below it, suggesting the war premium may be weakening a little.

The intermediate range is $75.12 to $54.70. Its retracement zone at $64.91 to $67.32 is resistance. It stopped the rally during the week ending January 30 at $66.48.

That’s the technical layout: major support at the 52-week moving average at $60.62, major resistance at $64.91 to $67.32.

The Week Ahead: All Eyes on Iran Talks

For this week, we’re going to be eyeing the progress of the talks between Iran and the United States. This could be the wildcard. The announcement of a deal could weigh on prices, while a total collapse will likely lead to renewed war premium buying.

More Information in our Economic Calendar.