UK Oil

09:43, 23 July

Daily Analysis

Settles Around Key $63 Level on Rising Tensions

In the last week or so UK Oil has fallen sharply back to the key $63 level before rallying up in the last two days. It met stiff resistance at $68 which has suppressed prices for the last two months. Over the last month or so it has slowly moved higher from a three month low below $60. In the last month or so oil has enjoyed some support from the $63 level and this support may allow it to consolidate here and then potentially threaten the next significant level of $68. In early June, oil did well to consolidate by trading in a narrow range roughly between $60 and $63, after falling sharply in the few weeks before.
Throughout the second half of May oil fell sharply from around the key $71 level down to its lowest levels in four months below $60, before the recent rally. In the few weeks leading up to the fall, it had eased lower from its six months highs above $75.50 to trade back around the $71 level, which it traded around for a few weeks. Prior to reaching the six month high, oil had met some resistance around the $71 level before breaking higher.

Of more significance is the $68 level which provided strong resistance earlier this year and subsequently supported oil several weeks ago, however this level was strongly broken through on its way to the recent four month low, but play a role again should oil continue to rally. Throughout February and March oil was trading in a narrow range meeting resistance at the key level of $68 and did well to finally surge higher through this level. The $68 level will sit on the sidelines and possibly be called upon to offer some resistance should oil rally further.

Rising tensions in the middle east and the world’s most important oil chokepoint doesn’t have everyone concerned about oil prices. Some would argue that it will lead to a sustained jump in oil prices, however Morgan Stanley is not convinced. They expect non-OPEC supply growth to keep crude futures relatively subdued over the coming months. Morgan Stanley’s global oil strategist Martijn Rats, told CNBC that he isn’t overly concerned about possible supply disruptions in the wake of intensifying geopolitical tensions in the Middle East. “The history of fear around the Strait of Hormuz suggests that from time to time, this concern can flare up and we can have some disruptions but they rarely last for very long. There is a difference in the oil market this time around because non-OPEC is simply growing so fast. That is the real game changer and that’s why the price action is relatively benign.” In a move that marked another escalation in an ongoing dispute between Iran, the U.S. and other Western nations, Iran’s Revolutionary Guards said they had captured a British-flagged oil tanker in the Strait of Hormuz. Having said that, many believe that it is the ongoing geopolitical risk that is keeping oil trading above $50 a barrel.