Crude oil prices dropped in yesterday’s trading as concerns about the US-Iran conflict somehow eased. WTI crude oil CFDs steadily traded lower after tapping 8-month highs at $64.71. By the end of yesterday’s trading, the commodity had settled at $62.84, 90 cents down from where it started the day.
Markets Brace for Escalation in the US-Iran Conflict
Risk aversion has been running high since Friday’s news about the US attacking Baghdad and killing Iranian General Soleimani. It would seem that investors had been bracing for the worst yesterday, since Iran had promised to avenge his death and retaliate. In fact, the country has gone as far as announcing a bounty for US President Trump’s head and targeting US military bases. So despite a few verbal threats from Trump yesterday, investors were able to breathe a sigh of relief, thankful that more violence has not ensued.
US-China Phase One Deal, A Done Deal
It also helped that a report from China cited that a Chinese delegation is scheduled to fly to the US on January 13 to sign a phase one deal. This has been speculated roughly a month ago. Although it was not entirely a surprise, it still helped improve the market’s mood.
With that said, investors still remain cautious. The drop in crude oil prices could be nothing more than just a pull back. Negative developments in the US-Iran conflict could easily trigger risk aversion again and push the commodity to new multi-month highs.
On the 4-hour time frame, we can see that WTI crude oil CFDs still has some room to move lower and still maintain its uptrend. Connecting the commodity’s November 29, December 3, and January 2 lows, we can see that crude oil prices may find support at the rising trend line around $61.96. This price also coincides with the commodity’s December 26 highs. Lastly, the price falls around the 61.8% Fib level when you draw the Fibonacci retracement tool from the low of January 2 to the high of January 6. Reversal candles around the $62.00 psychological handle could mean that buyers are priming for a rally to oil’s 8-month highs at $64.71.
On the other hand, if support at the rising trend line does not hold and we see a bearish close below $62.00, we could see crude oil prices tumble to their December 27 lows at $60.86 where the 100 SMA could offer support.