Oil prices dipped slightly in European trading on Tuesday, easing from their recent six-week high. Despite the pullback, prices remain elevated due to escalating geopolitical tensions in regions like Russia and Yemen, as well as supply disruptions in the US. Pemex, a major US refiner, has been forced to limit production at two plants due to a fire and air quality concerns.
Market Drivers: Supply Disruptions, Geopolitical Risks, and Risk-Off Sentiment
- Pemex Production Cuts: Two Pemex refineries have experienced production disruptions, one due to a fire and another due to air quality restrictions, further tightening US oil supplies.
- Russian Oil Discounts: Indian refiners are reportedly negotiating discounted Ural oil purchases from Russia, adding to concerns about global supply dynamics.
- Geopolitical Tensions: Ongoing conflicts in Russia and Yemen are raising concerns about potential disruptions to oil production and transportation, driving safe-haven demand for the US Dollar.
- Risk-Off Sentiment: A risk-off mood in global markets, fueled by concerns over Nvidia’s performance and upcoming French elections, is boosting the US Dollar and weighing on oil prices.
Technical Analysis: Oil’s Summer Outlook and Key Levels
The technical outlook for oil remains bullish in the short term, as the summer driving season in the US is expected to increase demand. Additionally, the earlier-than-usual start to hurricane season could further disrupt US oil production.
On the upside, the $81.00 level, which was previously a resistance, has been broken and now acts as a support. A sustained break above this level could open the door for a rally towards the year-to-date high of $87.12.
On the downside, the cluster of 55-day, 100-day, and 200-day Simple Moving Averages (SMAs) around $79.00 provides strong support. A break below this area could trigger a further decline towards $75.00.
Key Takeaways:
- Oil prices are easing from recent highs but remain elevated due to supply constraints and geopolitical risks.
- The US Dollar is strengthening amid risk-off sentiment, putting downward pressure on oil prices.
- Technical analysis suggests a bullish short-term outlook for oil, with potential for further upside if it can hold above key support levels.
