UK Oil

08:33, 07 November

Eyes off Support at $71 as Sanctions Take Effect

In the last month, oil has fallen sharply from its multi-year high above $86 down to the key level of $71 where it is likely to receive some support from. A week ago the decline halted as oil enjoyed solid support at the key $75 level for around a week before dropping through and falling lower. The $71 level has been significant for the last year and should oil drop lower again, it could easily continue a lot lower. Oil enjoyed a very healthy August and September moving from that key $71 level to its highs before falling back to the same level. Oil is now likely to meet some resistance from the $75 level should it rally higher.

 

Just prior to this pronounced move up to its recent highs, 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 year 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.

The United States has reimposed oil and financial sanctions against Iran, which has significantly increased the pressure on Tehran to curb its missile and nuclear programs and counter its growing military and political influence in the Middle East.Back in May, U.S. President Donald Trump announced that the United States will be withdrawing from what he called the “worst ever” agreement negotiated by the United States. The United States granted eight countries (China, India, Greece, Italy, Taiwan, Japan, Turkey and South Korea) temporary waivers allowing them to keep buying oil from Iran.This news hasn’t come as a surprise to anyone.Oil markets have been anticipating the sanctions for months now and prices have been under pressure as major producers including Saudi Arabia and Russia have increased output to near-record levels.U.S. Secretary of State Mike Pompeo said more than 20 countries have already cut oil imports from Iran, reducing purchases by more than 1 million barrels per day.U.S. officials have said the aim of the sanctions is eventually to stop all Iran's oil exports and diminish its influence in the Middle East.