Oil prices drop to $71.46 per barrel as tensions in the Middle East ease

In a significant move, oil prices have seen a substantial decrease, dropping to $71.46 per barrel on Tuesday. This drop of nearly 6% marks the most prominent daily decline in two years. The market’s reaction to the developments in the Middle East, where tensions have somewhat subsided, is reflected in this price reduction.

Israel’s measured response to Iran over the weekend, which avoided impacting oil facilities and nuclear sites, has played a crucial role in reducing the risk premium associated with potential disruptions in oil supplies from the region. Additionally, willingness expressed by Israeli officials to consider a temporary ceasefire in the Gaza Strip in exchange for the release of hostages has helped alleviate geopolitical risks that were previously inflating oil prices.

With immediate threats in the Middle East receding, attention has now turned to the weak economic data from China and the ongoing production levels from OPEC members. Furthermore, upcoming events will be closely monitored for any clues about the Federal Reserve’s forthcoming rate decisions. The prevailing expectation is two more rate cuts of 25 basis points each before the year ends, a scenario that is generally supportive of the energy sector.

Technical Analysis of Brent:
Currently, Brent crude is developing a corrective pattern aiming for the $70.55 level. If this level is reached, the market may anticipate a rebound towards $75.75, with further potential to rally towards $80.90 and even $85.85. The MACD indicator supports this bullish outlook, suggesting an upward movement.

On the hourly chart, Brent is finalizing a correction to $70.50, forming the fifth wave of this corrective phase. Once the target of $70.50 is achieved, expectations shift towards a new growth wave aiming for $73.23 as the initial target. This bullish forecast is supported by the Stochastic oscillator, indicating a pending upward correction.

In conclusion, the easing of tensions in the Middle East has led to a drop in oil prices. However, attention is now focused on economic data from China and upcoming events that may impact the energy sector. Technical analysis suggests a potential upward movement in Brent crude prices in the near future.

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