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James Hyerczyk
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WTI and Brent Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are down over 2% late in the session on Thursday. Technical factors as well as a strong U.S. Dollar are weighing on prices. Overbought technical indicators are encouraging profit-taking after the markets posted a 17-session rally, while the strong dollar is reducing foreign demand for the dollar-denominated commodity.

At 17:45 GMT, September WTI crude oil futures are trading $69.63, down $1.64 or -2.30% and September Brent crude oil is at $71.94, down $1.65 or -2.24%.

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Outside factors are also putting pressure on the markets. On Wednesday, the Federal Reserve signaled it might raise interest rates as soon at 2023. Additionally, buyers are being a little cautious on concerns over a possible U.S.-Iran nuclear agreement. But an upcoming election in Iran on Friday could scuttle the nuclear talks and leave U.S. sanctions on Iran’s oil exports in place.

Dollar Jumps after Fed Pulls Interest Rate Hikes into 2023

The dollar jumped against a basket of currencies on Wednesday and Thursday after the Federal Reserve brought forward its projections for the first post-pandemic interest rate hikes into 2023, citing an improved health situation and dropping a longstanding reference that the crisis was weighing on the economy.

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Overbought Technical Conditions Encouraging Profit-Taking

To put it simply, the rallies in WTI and Brent crude may have just run out of steam. Prices may have moved ahead of the fundamentals, which made investors nervous enough to begin trimming positions. Bullish traders could just be looking for value also, growing tired of chasing the headlines. A short-term correction may be necessary to drive prices into a value zone, where the markets will once again attract new buyers.

US-Iran Nuclear Deal Could Be the Wildcard

The U.S. and Iran have been having on and off discussions since April. For months, oil traders have been worrying about new crude supply from Iran coming onto the market. This fear was thought to have been put to bed about two weeks ago when a U.S. official said the lifting of sanctions on Iran may not necessarily mean its oil could come onto the market.

Traders are a little nervous at this time because they aren’t confident in the outcome of the deal. Furthermore, it is very possible that the nuclear talks fall apart. That would probably be the best outcome for higher prices.

For a look at all of today’s economic events, check out our economic calendar.
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