UK Oil

09:53, 01 October

Surges Through Resistance at $80 to Three Year High

The last week has seen oil surge higher through the resistance level at $80 to reach a three year high above $83. For the last week or so, prior oil was struggling with the resistance around the key $80 level despite strong surges higher in the few weeks leading up to it. A few weeks ago it fell back sharply towards another key level in $75, before having another run at the resistance at $80. Oil has enjoyed a very healthy last couple of months moving from the key $71 level to its current trading levels. Just prior to this pronounced move, oil was content to remain within its trading range between $71 and $75.

Through May and June oil had established a trading range between the two key levels of $75 and $80, with the former offering reasonable support during that time. It is no surprise that the $75 level is now providing some resistance to higher prices. During this time oil reached a three year high in May above $80.

It is hard to argue against the strength of oil over the last ten months or so as it has moved from below $45 to its current trading range. After drifting lower to start last year, the second half of 2017 saw oil move strongly to move through previous resistance at $57 although it did stall around that level for a few weeks before surging higher. After reaching the three years high around $71, oil fell strongly to below $62 in under three weeks however it did well since to consolidate a little and hold above $65.

Oil prices have enjoyed a steady climb for the last couple of months due to the escalating trade dispute between the United States and China gathering momentum. They have also been well supported by strong domestic gasoline demand amid ongoing global supply concerns over U.S. sanctions on Iran that come into force in November. Oil finished the week strongly as U.S. sanctions on Tehran squeezed Iranian crude exports, tightening supply even as other key exporters increased production. The market is becoming all too aware that the Iranian sanctions are not that far away. The United States is currently demanding that buyers of Iranian oil cut their imports to nothing to force Tehran to negotiate a new nuclear agreement and to curb its influence in the Middle East. The Iranian foreign minister said that another top buyer India is committed to buying oil from Tehran. Analysts have suggested that other OPEC countries have been increasing production in recent months, however, global inventories have been falling as supply tightens. To offset the drop in Iranian production, Saudi Arabia is expected to add extra oil to the market over the next couple of months.