The oil prices retreated during Monday’s trading, reaching $71.80 per barrel, despite several geopolitical factors supporting an upward trend.
I believe the markets have overlooked these factors as they currently have minimal impact on oil supplies. However, the primary concern remains the potential retaliation or action by China against the election results in Taiwan, where the ruling Democratic Party claimed further sovereignty and independence.
Simultaneously, world leaders are gathering at Davos for the World Economic Forum, holding side meetings to discuss hot topics such as Ukraine, Taiwan, the Red Sea, and tensions in Gaza. The Dollar Index (DXY) is trading sideways as markets await any new developments in these global hotspots.
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The slight decline in the strength of the U.S. dollar is likely due to economic data no longer consistently surpassing expectations, especially as some indicators begin to contract. In contrast, U.S. labor market data remains strong.
Oil traders seem unfazed by the repeated attacks on ships in the Red Sea. The real concern lies in the event of a clash with Iran and the potential closure of the Strait of Hormuz, which could result in a roughly 20% increase in oil prices.
Reports of increased oil production by OPEC in December are deepening oil losses, with a decline of over 3.1%, despite ongoing concerns about the impact of supply disruptions in the Red Sea.
The U.S. Energy Information Administration announced that non-OPEC+ production growth would slow to 1.1 million barrels per day by 2024. Additionally, OPEC+ crude oil production is expected to decrease by 600,000 barrels per day in 2024, leading to an average daily global oil inventory shortfall of 800,000 barrels in the first quarter of 2024. This makes a return to higher prices likely in the short to medium term.
The World Bank expects global economic growth of around 2.4% in 2024, unchanged from June 2023 estimates. However, it lowers its growth forecast for the next year from 3% to 2.7%, citing “regrettably low” global GDP growth rates by the end of 2024, the lowest and slowest in 30 years. This puts negative pressure on oil prices and supports safe-haven assets.
Liquefied natural gas (LNG) prices in North Asia have dropped to their lowest level in almost 7 months, around $9.80 per million British thermal units, due to expectations of moderate weather and rising inventories.
In my opinion, the attacks in Yemen are likely to escalate tensions across the Middle East and expand the conflict area if the situation in Gaza is not contained. Amid these tensions, caution should be exercised, especially regarding a strong rise in oil or gold prices, which could occur at any moment based on any new developments.
Crude oil prices have struggled to experience significant increases since the beginning of 2024. Despite the presence of several major and influential geopolitical factors on the global stage, it appears that none of the conflict players or world powers can bear enough risks to push prices higher.
While OPEC+ remains unable to raise or, at least, support prices, the responsibility may fall on traders and investors if oil prices surge due to intense geopolitical pressures on the market.
From a technical perspective, on the 4-hour chart, the $74 level continues to act as a significant strong resistance after a failed breakout above it last Friday. While it is currently quite distant from the current levels, the $80 level comes into play if tensions escalate further. Once the $80 level is breached, the next upside target is $84, following a few daily closes above the $74 level.
As long as the price remains below $74, the $67 level still represents crucial support, from which a bounce could occur, aligning with the triple bottom from June. If this support is broken, the target may approach the new low for 2023 at $64.35, the lowest level since May and March. A break below this level could signify a medium to long-term collapse in oil prices. It’s important to note that the current market trend is cautiously bearish.
Support Levels: $71.27 – $70.50 – $70.00
Resistance Levels: $72.50 – $73.60 – $75.20