Crude Oil Update: Geo-political Risks vs FOMC Policies

Middle East tensions are feared to widen beyond the borders of Israel and Palestine
Hurricane season has kicked off strongly, raising fears of supply disruption coinciding with the usual oil demand surge of the driving season
Declining U.S economic data versus easing monetary policies

Geo-political Risks:

Beyond the conflict with Hamas, Israel’s clashes with Hezbollah raise fears of escalating Middle Eastern tensions towards a broader conflict involving Lebanon.

Climate Risks:

In addition to the expected increase in oil demand during the summer season, supply disruption fears are rising. The NOAA predicts an 85% chance of an above-normal 2024 hurricane season, with near-record warm ocean temperatures.

Economic Risks: On one side, Chinese Manufacturing PMIs have recorded disappointing figures for oil demand potential. On the other side, declining inflation and economic growth figures in the U.S. might support oil demand potential, given the potential easing of monetary policies on the horizon. The upcoming FOMC minutes will be closely watched for insights on potential rate cut dates.

Recent figures:

May CPI: in line with the Fed’s target

May PCE: in line with the Fed’s target

ISM Manufacturing PMI: three consecutive declines below expansionary metrics

CME Fed Watch Tool: more than 60% anticipation for a rate cut in September

OPEC Quotas: Countries that have previously produced beyond OPEC quotas, such as Iraq, are aligning with their latest vows to meet supply cut quotas.

Shifting to technical analysis:

Crude Oil Update: USOIL – Daily Time Frame – Logarithmic Scale

Breaking above the resistance level connecting the consecutive highs of May, oil is on track towards the upper end of its larger consolidation. After surpassing its latest high of 83.50, the following potential resistance levels are in sight:

Resistance 1: 84.50 – 85 zone (upper end of the consolidation)

Resistance 2: 87.30 zone (2024 high)

Resistance 3: 92 zone (potential inverted head and shoulder pattern target)

Regarding the Relative Strength Index (RSI), a short-term momentum uptrend is still possible before retesting the overbought levels.

Downside Risks: After tracing the fifth wave of the consolidation, a potential retracement back towards the lower end of the consolidation is possible, starting with levels 80 and 77 consecutively.

Attention remains on developing risks, from wars to elections, economic growth figures, and monetary policies, to support the following technical projections.

--- Written by Razan Hilal, CMT

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.