Crude oil price continued its recent retreat as optimism of a deal between the US and Iran rose. Brent, the global benchmark, dropped for six consecutive days, reaching its lowest level since September 8, down by 10% from its highest point this month. Still, technicals suggest that the upside is still intact.
Crude oil price falls after US-Iran talks
Brent and the West Texas Intermediate (WTI) continued the downward trend after the US and Iranian officials held talks in New York. Iran delivered its requirements to reopen the Strait of Hormuz.
With distrust continuing, officials have demanded that the US must go back to the Memorandum of Understanding (MoU), including ending the war in all fronts, end the blockade, and the release of its frozen assets.
Iran points to the distrust that the US has caused, including the launch of strikes during negotiations. The US also launched strikes during the MoU.
Expectation is that Trump will put pressure on Xi Jinping to intervene in the war. This would be notable since China is one of the biggest Iranian trading partners.
Meanwhile, Goldman Sachs believes that China’s oil imports will be subdued in the coming months, especially if prices remain elevated. The bank believes that imports will rise moderately by about 600k barrels a day in the fourth quarter. Such a move would help to cap oil prices surge.
Oil prices face substantial risks ahead
Crude oil prices face some notable risks that may impact its performance in the near term. One of the risks is that the US-Iran war will extend for months or even years to come, putting a limit on the flows from the Middle East.
Another risk is that oil flows from Saudi Arabia will remain limited. Fighting between Saudi Arabia and Ansar Allah continues, while the East-West pipeline is still closed. Even when it is reopened, there is a risk that key groups in the region will attack it.
All this is happening as oil inventories have continued falling. Estimates are that the EIA report scheduled for later today will show drawdowns of 700k barrels last week, higher than the previous 640k.
Brent crude oil technical analysis
Crude oil price chart | Source: TradingView
Technicals suggest that crude oil prices may have some more upside to go. For one, Brent remains above the ascending trendline that connects the lowest swings in July, August 5, and August 25.
It is also above the 50-day Exponential Moving Average (EMA), while the Supertrend is still green. The Relative Strength Index (RSI) has been falling, moving from a high of 76 to the current 51. This means that oil prices have not become oversold.
Therefore, the most likely scenario is that prices drop further, potentially to the ascending trendline, and then bounce back. This means that it may drop to $95 before bouncing back again.
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