Oil sinks below $78 against backdrop of OPEC supply surplus

• Oil breaks support from its 2024 rally again on Tuesday.
• The markets ignore the current problems in the Middle East, as there is no risk to production in the region.
• The Dollar Index is looking for direction, stuck in a tight range earlier in the week.

Oil prices begin to accelerate their decline on Tuesday, testing market belief and support for further increases. Traders are not giving weight or importance to the risk of the two main headlines that were published on Monday and today. On the one hand, the funeral of the Iranian president who crashed in a helicopter accident. On the other, the international arrest warrant from the international criminal court against Israeli leader Benjamin Netanyahu and the country's defense minister, accused of war crimes.

Meanwhile, the US Dollar Index (DXY), which tracks the dollar against a basket of six major currencies, is looking for direction, with markets oscillating between risk-on and risk-off ahead of Nvidia's earnings results. Wednesday. The Federal Reserve (Fed) is scheduled to give another large number of speeches on Tuesday, so it seems that all Fed members are going to repeat the same thing. Therefore, there is likely to be no new data indicating the exact timing of the Fed's first interest rate cut.

At the time of writing these lines, oil (WTI) is trading at $77.90 and Brent is trading at $82.29.

Oil news and market movements: Nothing is really moving

• Several countries have issued warnings and asked to remain on high alert for possible retaliation after the helicopter crash in which the Iranian president died.
• US President Joe Biden has attacked the International Criminal Court in an attempt to support his ally Israel, according to Reuters.
• Bloomberg News reports that President Vladimir Putin said Russia's oil production fell by 1.8% in early 2024 compared to the same period last year.
• On Tuesday at 20:30 GMT, the American Petroleum Institute (API) will publish figures for the weekly change in US crude oil reserves for the week ending May 17. The previous figure was a reduction of 3,104 million barrels.

Technical analysis of oil: Any setback can be resolved with OPEC surplus

Oil prices retest the uptrend line from the December low for the third consecutive week. Despite the large number of headlines coming from the Middle East, traders do not consider any of the developments or headlines as a risk element that could cause disruptions to the region's oil supply or global trade. This makes oil an outlier, with traders missing out on the commodity rally occurring in precious metals and gas futures.

To the upside, the line in the sand remains at the 200-day SMA, currently at $79.62. Once above that level, a double layer appears with the 100-day SMA at $78.58. In case of an upward extension above that zone, the path opens again towards $87.12.

On the downside, the pivotal level at $75.28 is the last solid line in the sand that could support the end of this decline. If this level does not hold, investors could expect an acceleration of selling towards $72.00 and $70.00. That would erase all gains by 2024. If it continues to decline, the oil price could test $68, the Dec. 13 low.

WTI Oil: Daily Chart