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Crude Caught In Between

Following a strong move higher over early February, which looked to be setting the market up for a breakout higher, crude futures have stagnated over the last week. Price remains in a tightly wound block of consolidation around the 77.64 level as traders await fresh directional drivers. The ongoing conflict in the Middle East remains a key driver for oil prices.
 

Middle East Conflict

With Israel’s war on Hamas showing no signs of stopping and Houthi militants carrying out retaliatory attacks on shipping routes in the Red Sea, oil prices remain vulnerable to fresh upside on any headlines linked to an escalation of violence. However, price action this week suggests that the current situation is losing some importance as a driver, perhaps with traders viewing the current violence as unlikely to escalate further.
 

Fed & USD Impact

Away from the Middle East, the other key focus is the US. Expectations that the Fed will keep rates on hold for longer are likely to create headwinds for oil prices should USD turn higher again. Hawkish pushback from the Fed keeps the bullish Dollar view intact for now, meaning oil will likely struggle to find higher ground while US data holds firm. With pricing for a cut in May having fallen below the 50%-mark traders will be closely watching incoming data. Should inflation remain sticky at current levels, rate pricing for June is likely to start to weaken too, pushing USD higher again and weighing on oil near-term.
 

Technical Views

Crude

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The rally in crude has stalled for now into a test of the 77.64 level with price remaining highly congested there. Momentum studies are fading, suggesting risks of a correction lower. While the bull channel and 72.61 support hold, however, focus is on a continuation higher medium-term, with 82.59 the next target. 

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