Oil News: Profit-Taking Sparks 2% Drop in Crude Futures; Middle East Tensions Ease

Crude Oil Prices Retreat as Profit-Taking Begins Following Sharp Rally

Light crude oil futures dropped over 2% on Tuesday, halting a six-day upward surge. After reaching $78.46, just above the key August 12 high of $77.76 but falling short of the July 5 peak at $80.71, prices reversed.

With profit-taking setting in, support levels to watch include the 200-day moving average at $73.26, the key pivot at $72.21, and the 50-day moving average at $71.53. This technical pullback hints at the formation of a bearish reversal, which could trigger a short-term correction lasting two to three days.

At 10:42 GMT, Light Crude Oil futures are trading $75.50, down $1.64 or -2.13%.

Middle East Tensions and Supply Fears Ebb

The recent rally was fueled by geopolitical risks following Iran’s missile attacks on Israel, raising concerns about potential disruptions to oil supplies. However, the absence of further escalations has cooled fears. Investors have scaled back their war-risk bets, leading to Tuesday’s price drop. Ashley Kelty, an analyst at Panmure Liberum, noted that oil prices are likely to remain volatile, though profit-taking may pressure prices without significant developments in the Middle East.

Despite the overbought technical conditions, Monday’s price surge was driven by fundamental factors, including last week’s 8% rally—the largest in over a year—amid escalating regional tensions. However, Tamas Varga of oil brokerage PVM warned that the market might struggle to sustain further gains without concrete disruptions to oil flows, particularly if Israeli retaliations avoid targeting Iranian oil infrastructure.

Hurricane Milton and Chinese Demand Concerns Weigh on Market

Adding to bearish pressure, concerns about weak demand from China, the world’s largest crude importer, remain a drag on sentiment. China’s announcement that it remains confident in meeting its growth targets disappointed investors expecting more aggressive fiscal stimulus. This raises concerns about reduced oil demand if Chinese economic activity continues to lag.

In the U.S., Hurricane Milton, now a Category 5 storm, forced the shutdown of at least one oil platform in the Gulf of Mexico, further complicating market sentiment. Traders are also awaiting key U.S. inventory data, with a forecasted rise of 1.9 million barrels in crude stocks, according to a Reuters poll. The American Petroleum Institute (API) is set to release its figures later on Tuesday, followed by official data from the Energy Information Administration on Wednesday.

Market Forecast

The outlook for crude oil remains cautiously bearish in the short term. While geopolitical tensions in the Middle East provided an initial price boost, the lack of immediate supply disruptions combined with profit-taking suggests a downside correction could extend in the coming days.

Additionally, concerns about slowing demand in China and an anticipated increase in U.S. crude inventories further support a bearish bias for traders in the near term. Oil prices could fall back toward key support levels if no major new developments emerge.