Oil Prices Forecast: Weaker Amid Israel-Hamas Diplomacy, Eased Supply Concerns

Highlights

• Diplomacy cools Israel-Hamas conflict, impacting oil.
• U.S. lifts Venezuela sanctions, easing supply.
• China trims back on expensive oil imports.

Oil Markets Respond to Israel-Hamas Conflict and Global Supply Factors

Oil prices took a dip on Monday, swayed by hopes of de-escalation in the Israel-Hamas conflict and softened supply pressure. Brent crude futures declined to $91.24 a barrel, while U.S. West Texas Intermediate (WTI) dropped to $87.00. Just a week prior, both benchmarks had risen over 1% due to fears that the conflict could potentially escalate, affecting the world’s largest oil-producing region.

Diplomacy Influences Oil Markets

Over the weekend, diplomatic initiatives aimed at mitigating the Israel-Hamas conflict intensified, particularly with aid convoys entering Gaza from Egypt. Market sentiment also took a hopeful turn as Israel paused a planned ground incursion into northern Gaza for hostage negotiations. These developments have helped reduce the conflict’s risk premium on oil prices.

Supply Pressures Easing

The supply equation is also shifting. The U.S. has lifted sanctions on Venezuela, an OPEC member, following a government deal with the Venezuelan opposition. This move could alleviate the tightness in the oil supply market, which has been exacerbated by OPEC and Russian production cuts.

China’s Role in Global Oil Dynamics

In a separate development, Chinese refiners dipped into their crude stockpiles for September, drawing about 240,000 barrels per day, according to Clyde Russell from Reuters. China, the world’s largest crude importer, appears to be trimming back on expensive imports in response to the oil price rally that began in July. Diesel exports from China have also been strong, as refiners capitalize on high Asian transport fuel margins.

Short-term Outlook: Bearish

With diplomatic efforts gaining momentum and supply constraints easing, the short-term outlook for oil appears bearish. The market seems to be adjusting to these geopolitical and supply chain developments, leading to a pullback in oil prices.

Technical Analysis

The current daily price of light crude oil futures is $87.01. This price is above the 200-day moving average of $78.03 but also above the 50-day moving average of $85.84. In other words, the asset is trading above both its longer-term and shorter-term averages.

Main support stands at $82.68, while minor support is at $88.21; both are below the current price. Conversely, minor and main resistance levels are at $92.49 and $97.67, respectively, above the current price.

With these factors considered, the market sentiment is trending higher. However, a failure to hold the 50-day moving average could shift momentum to the downside.