- Oil retreats from its peak above $85 following news that Israel has launched a retaliatory attack against Iran.
- WTI oil prices broke above $85, while Brent prices hit $90.
- The US Dollar Index advances in green as risk aversion sentiment prevails.
Oil prices rose in early trading on Friday after Israel retaliated against Iran by attacking targets in the west of the country, two US officials confirmed to Bloomberg. Iran restricted its airspace and confirmed, along with the United Nations nuclear watchdog, that no nuclear facilities had been hit. The retaliatory attack raises the possibility of a direct confrontation between Israel and Iran after years of proxy war between the two.
The US dollar is experiencing significant inflows from several fronts: the flight to safe-haven assets is the main one, as investors seek refuge amid fears that the attack could be a turning point, dragging the entire Middle East into this dispute . Secondly, the Dollar also benefits from the recent rebound in energy prices, particularly oil, as it could cause a second round effect on inflation in the coming months if this situation continues. This opens the door to a new interest rate hike by the US Federal Reserve (Fed), although it is not the baseline scenario for almost all Fed members.
Crude oil (WTI) is trading at $83.08 and Brent at $87.55 at the time of writing.
Oil news and market movements: Crucial what the US does next
- Stephen Dainton, head of investment banking at Barclays, told Bloomberg that oil's pullback could take place this Friday with markets digesting the headlines, although as of now oil will trade in a higher range and could not falling below $80 again soon
- The US Embassy in Jerusalem has issued a security alert for government officials and their families, according to Reuters.
- Iran's communication on state television appears to downplay the situation, reducing the attacks to a few minor explosions. The New York Times, however, cited three Iranian officials as saying that a military air base near the city of Isfahan was hit by the attack.
- For his part, Israel's president, Benjamin Netanyahu, faces criticism from his National Security Minister, Itamar Ben Gvir, who stated in a tweet that the attack was a “weak” attempt.
Oil Technical Analysis: Initial Relief Before Next Move Up
Oil prices rose more than 4% on headlines from the Middle East in early morning trading on Friday. If markets assume that Israel's response was contained and that Iran keeps a cool head and does not retaliate, we are likely to see some easing later this Friday. Still, markets are likely to keep a close eye on the headlines until Iran makes its official announcement.
With geopolitical tensions persisting, the $83.34 and $90 areas should remain within reach. A small barrier in the way is $89.64, the October 20 high. Should tensions continue to rise, it is possible that the September high at $94 could even be reached and a new 18-month high could be reached.
On the downside, $80.63 is the next candidate as a fundamental support level. Convergence with the 55-day and 200-day SMA at $79.88 and $79.57 should halt the decline.
US WTI Crude Oil: Daily Chart
WTI Oil FAQ
What is WTI oil?
WTI oil is a type of crude oil that is sold in international markets. WTI stands for West Texas Intermediate, one of the three main types that include Brent and Dubai crude. WTI is also known as “light” and “sweet” for its relatively low gravity and sulfur content, respectively. It is considered a high-quality oil that is easily refined. It is sourced in the United States and distributed through the Cushing facility, considered “the pipeline junction of the world.” It is a benchmark for the oil market and the price of WTI is frequently quoted in the media.
What factors determine the price of WTI oil?
Like all assets, supply and demand are the main factors that determine the price of WTI oil. As such, global growth can be a driver of increased demand and vice versa in the case of weak global growth. Political instability, wars and sanctions can alter supply and impact prices. The decisions of OPEC, a group of large oil-producing countries, is another key price factor. The value of the US Dollar influences the price of WTI crude oil, as oil is primarily traded in US dollars, so a weaker Dollar can make oil more affordable and vice versa.
How do inventories influence the price of WTI oil?
Weekly oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) influence the price of WTI oil. Changes in inventories reflect the fluctuation of supply and demand. If the data shows a decline in inventories, it may indicate an increase in demand, which would drive up the price of oil. An increase in inventories can reflect an increase in supply, which drives down prices. The API report is published every Tuesday and the EIA report the next day. Their results are usually similar, with a difference of 1% between them 75% of the time. EIA data is considered more reliable since it is a government agency.
How does OPEC influence the price of WTI oil?
OPEC (Organization of the Petroleum Exporting Countries) is a group of 13 oil-producing nations that collectively decide member countries' production quotas at biannual meetings. Their decisions often influence WTI oil prices. When OPEC decides to reduce quotas, it can restrict supply and drive up oil prices. When OPEC increases production, the opposite effect occurs. OPEC+ is an expanded group that includes ten other non-OPEC member countries, including Russia.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
