Oil on hold as the market bets on diplomacy

Oil prices fell on Tuesday, giving back part of the earlier gains. Around the opening of the U.S. session, Brent crude was hovering between $94 and $95. The decline in prices was a reaction to hopes for a limited de-escalation of tensions in Lebanon and statements by Donald Trump, who suggested that an agreement with Iran could be reached within the next week. At the same time, the U.S. president acknowledged that complications had emerged in the talks – without providing details. The oil market remains sensitive to any messages related to Iran, which are not always immediately verifiable.

Importantly, even a complete and immediate de-escalation of the conflict would not remove the underlying supply risk that keeps prices elevated. Nevertheless, the market remains determined to price in scenarios of falling oil prices. An additional element of uncertainty is the possible return of political discussion in the U.S. about banning exports of crude oil or refined products. Barclays analysts believe that as the midterm elections approach, this topic may appear more frequently in public debate, even if the Trump administration remains opposed to such a solution. According to Barclays, an export ban would be more damaging to the energy market than oil at $100 per barrel, because it would hit refineries and the energy infrastructure segment.

OIL (D1)

Oil has once again dropped to the lower boundary of an increasingly clear, broad price channel between $115 and $86. The EMA moving averages still indicate bullish momentum, while the RSI remains around 43. The EMA100 proved to be strong support, stopping the price clearly above the 61.8% Fibonacci level. A trough above the mid-April low suggests that, technically, tension is higher than a superficial glance at the chart might imply. Source: xStation5.