Crude oil prices continued to drop on Tuesday, marking a second consecutive day of losses. This decline followed the release of the International Energy Agency’s (IEA) monthly report, which added to existing market pressures. As of now, crude oil has lost nearly 7% this week.
The situation is further complicated by geopolitical developments. On Monday, The Washington Post reported that Israel is limiting its military targets, avoiding strikes on Iranian oil facilities. Despite this, Israel’s Defense Minister Yoav Gallant’s strong statement, vowing a “deadly and precise” response against Iran, is temporarily slowing oil’s price decline.
IEA and OPEC Reports Point to Oversupply
The IEA report comes after the Organization of the Petroleum Exporting Countries (OPEC) released its monthly report on Monday. OPEC lowered its demand growth forecast for the third time in a row, signaling a persistent oversupply in the market. Coupled with easing geopolitical tensions, this has driven a significant correction in oil prices.
As of the time of writing, West Texas Intermediate (WTI) crude is trading at $69.70, while Brent crude is priced at $73.67.
US Dollar Faces Resistance
Meanwhile, the US Dollar Index (DXY), which measures the dollar’s strength against six major currencies, remains around 103.00. However, it faces challenges breaking past a resistance level of 103.18 for the second day. A close below this level, combined with calming tensions in the Middle East, could lead to a sharp decline in the DXY.
Key Developments in Oil Markets
Israel’s Defense Minister Yoav Gallant reaffirmed Israel’s plans for a decisive and precise response to Iran, according to Reuters.
For the first time in a while, both the IEA and OPEC are aligned in their assessment of an oversupply in the oil market, as reported by Bloomberg.
OPEC’s crude output dropped by 650,000 barrels per day in September, driven by reduced production in Libya, according to the IEA’s monthly report, Reuters reports.
Despite geopolitical risks in the Middle East, global oil markets are expected to remain oversupplied into the new year unless significant disruptions occur, the IEA said.
Due to the Columbus Day holiday on Monday, the American Petroleum Institute’s (API) weekly inventory data will be released on Wednesday.
Technical Analysis: Further Declines Expected
Crude oil prices have taken another significant hit, this time due to the IEA’s report emphasizing oversupply. According to the report, demand is expected to remain weak through the end of the year, which could drive further declines in oil prices.
For crude oil to recover and reach $75.00, it must first break through the key resistance level of $71.46, which briefly supported prices on Monday. Above that, the $75.30 level, along with the 100-day Simple Moving Average (SMA), poses the next major obstacle.
On the downside, $71.46 has turned into a resistance level. If prices fall further, the next support level is $67.11, which held during May and June of 2023. If that breaks, the year-to-date low near $64.75, followed by the 2023 low of $64.38, will come under pressure.
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