Oil prices are on the rise in afternoon London session on Monday, propelled by falling dollar strength. Benchmark Brent Crude was trading at $83.22 at 1.20 pm, while West Texas Intermediate (WTI) was at 78.21, up 0.06% on the day’s opening. The commodity looks set to trade within small margins of Monday’s opening, even as the market reacts to renewed attacks on cargo ships in the Red Sea.
The US dollar is on its third day of decline, with the DXY index at a 5-day low of 104.277 at press time. Dollar-denominated crude oil tends to experience higher demand when the greenback weakens. The weakening dollar could, however, receive a fresh impetus on Wednesday when the FOMC meeting minutes come out.
Meanwhile, the market will likely be reacting to the latest developments in the Middle East, where Iran-backed Houthi rebels have claimed a “catastrophic” attack on a British cargo ship. The attack reportedly forced the crew to abandon the ship and it was “almost certainly bound to sink”. While the rebels previously targeted “Israel-linked” ships, they have now expanded their target scope to include UK and UK-linked ships.
The expanded scope of attacks by the Houthi rebels could escalate tensions surrounding crude oil supply lines, considering that about 12% of global maritime cargo passes through the Red Sea. However, rising US oil inventories and gloomy demand forecasts could weigh down on price gains. The International Energy Agency (IEA) last Thursday revised downwards the global demand outlook for oil in 2024. The agency estimates that the demand will slow down from 1.24 million bpd to 1.22 million bpd, with China’s slowing economy partly responsible.
Technical analysis
The WTI oil price will pivot around 77.35, but the RSI shows mixed signals, making it unlikely to sustain a strong upward momentum. Nonetheless, a push to the first resistance at 78.70 looks tenable, and a break beyond this point could build momentum to meet the next resistance at 79.30. However, a pushback by the bears could establish the first support at 76.80. Furthermore, a break below this point could pull the support lower to target 76.80.
