Crude Oil Prices Retreat from 9-Month Highs After Iran’s Attack on US Bases. Why?

Crude oil prices skyrocketed on news that Iran attacked US military bases to avenge the death of Iranian General Soleimani. WTI crude oil CFDs rallied to their 9-month highs at $65.62 following reports that Iran launched a dozen missiles to US military bases in Iraq in Ayn al-Assad and Erbil. However, crude oil prices quickly gave up their gains. As of this writing, the spot price of WTI crude oil is trading at $63.28.

Crude Oil Prices Retreat from 9-month Highs

There are two reasons that could help explain why crude oil prices were not able to sustain their gains. First is that there were a lot of false reports that were released at the wake of the attack. There were said to have been rockets launched at US military bases which were not true. Instead, over a dozen ballistic missiles hit US bases. Rockets being unguided and without steering abilities compared to missiles, were likely to have cause more destruction or even civilian deaths. Secondly, there have been no confirmed casualties. The US Pentagon said that no US personnel died in the attack. US President Donald Trump even tweeted “All is well” after it. On the other hand, Iran has announced that there were 80 American “terrorists” killed in the attack.

As I said in my previous post, the official number of casualties will be crucial because it will determine the extent of the US’ retaliation. Iran has already said that it will stop attacking US bases if Trump does not respond. With that said, updates on the assessment of damages will likely dictate today’s market sentiment and in effect, crude oil prices. The higher the number of confirmed casualties, the more risk averse the market will be. Investors will likely be bracing for more aggressive measures between the two countries. On the other hand, if there are indeed no casualties, the news may give investors hope that the US may back down in the Middle East.

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Crude Oil Price Outlook

On the hourly time frame, we can see that WTI crude oil CFDs have retraced most of its gains back to the 61.8% Fib level (drawing from yesterday’s low to today’s swing high). If support at the Fib level around $63.50 does not hold, crude oil prices could fall to test support at the rising trend line (from connecting the lows of January 2 and January 7). This price, $62.90, also seems to coincide with the 100 SMA and the commodity’s European session highs yesterday. If support at this level does not hold, you can look at $60.80 as the next floor. The commodity found support at this level on December 31.

On the other hand, reversal candles on the Fib level or trend line could mean that crude oil prices may rally again to $63.63.

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