Oil falls as Iran boosts output ahead of OPEC meeting

An Unforgettable Event Elevating Trading Education 

Oil prices dropped more than 1.5% in Wednesday’s European session, with U.S. West Texas Intermediate (WTI) crude reaching its lowest levels in nearly two months. Markets are not reacting well to the headline that Iran plans to add between 300,000 and 400,000 barrels per day to its production for this year.

Meanwhile, Dollar gains have contributed to energy markets falling again, with oil at eight-week lows. Concerns about a new inflationary outbreak have somewhat eased due to the $10 drop in U.S. crude prices over the last month. The U.S. decision to refrain from supplying new ammunition to Israel amid concerns about a possible ground offensive in Rafah highlights the desire to reach a ceasefire, which would help alleviate concerns about persistent tensions in the Middle East.

On the other hand, the American Petroleum Institute (API) reported on Tuesday that U.S. crude inventories rose by 509,000 barrels in the week ending May 3.

The Energy Information Administration (EIA) issued a note on Wednesday saying it believes the oil market will remain balanced for 2024, noting that non-OPEC countries will fill the gap from OPEC production cuts.

Technical analysis of oil: Cooling in an uptrend

Oil prices are further cooling as the risk of disruptions in Middle East oil production is not materializing. As traders seem weary of paying a risk premium for something that has yet to happen, there is some capitulation in oil price, where only $75.28 seems to be the sole solid support level left to prevent oil from falling to $70.00.

Still, a trend reversal could occur once oil prices reclaim the $78.07 mark, with the 100-day Simple Moving Average (SMA) and the green uptrend line from December acting as support. Moving upwards, the 200-day SMA at $79.76 and the 55-day SMA at $81.12 are levels to watch for profit-taking. Longer-term, $87.12 remains the major bullish level.

To the downside, the key level of $75.28 is the last solid line in the sand that could halt this decline. If this level does not hold, an accelerated sell-off towards $72.00 and $70.00 can be expected. This would mean that all gains for 2024 have been wiped out, and oil could test $68, the December 13th low.