Crude On Watch As IEA Considers Record Reserve Release
Conflict Keeps Crude Underpinned
Crude prices are rising again today in response to news of the escalating conflict in the Strait of Hormuz. A bulk carrier was hit by an Iranian missile while attempting to pass through the Strait, leading to the crew needing to evacuate. Additionally, reports that Iran had been laying mines in the area saw the US responding by blowing up 16 Iranian mine-laying ships overnight. Risk assets have generally recoiled today as the conflict shows no signs of stopping. Furthermore, traffic through the Strait is expected to remain at anaemic levels while risks in the region remain so high.
IEA Reserve Release
However, despite the impact on crude distribution, which would typically lead oil much higher, bull momentum is meeting some resistance with traders also focusing on an expected IEA release of strategic oil reserves. Following a meeting of G7 leaders on Monday to discuss such a move, the IEA is reportedly drawing up plans for its largest ever reserve release.
Price Capping Hopes
The move, similar to what was seen in response to news of Russia invading Ukraine, is intended to help cap the rally in crude. Indeed, the market has already reacted ahead of any confirmed release with crude futures cooling to mid $80s p/b from $120 p/b on Monday. For now, the prospect of such a release is keeping prices capped, offsetting any fuller upside reaction to military actions in and around Iran. If the release goes ahead, we can expect crude prices to cool further near-term. However, if a release is not confirmed soon, or we see a smaller release than expected, crude could continue to push higher again, particularly if the conflict continues to escalate.
Technical Views
Crude
The reaction lower from the $120 highs has seen the market stalling into a retest of the support at the $84.60 level. While this area holds, focus is on a fresh push higher with $95.06 the next resistance to note. If we break lower here, however, $77.65 will be the next support to watch.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.