WTI bulls bail-out at spoke highs, expecting Persian Gulf crisis deescalation
- WTI bulls have capitulated from spike highs as markets expect de-escalation of war cries in the Persian Gulf.
- We should also be paying attention to the conflict in Libya, reflation and OPEC+supply cuts.
The price of West Texas Intermediate had spiked through trendline resistance in a speculative move following the U.S.’s killing last week of a top Iranian general. However, in more recent trade, the price has pulled back and is currently trading -0.35% at the time of writing as investors bet that the incident might not have a lasting impact on crude values while both Iran and the US will not seek an outright war.
The US should know too well that Iran is not a friendly nation, for it has allies all over the world and the constant ratcheting up of war fever can only end in disaster for both sides. For that reason, markets are of the view that the Purgoin Gulf crisis will be de-escalated on a multinational anti-war front.
"While the world is watching for Iran's response, which many fear could trigger an escalation in tit-for-tat aggressions, markets are also reacting to clashes in Libya – which pose a serious threat to oil production. We caution against expectations for a sensational response from the Iranian regime, expecting instead that any response will be well measured as both sides seek to protect their core interests,"
analysts at TD Securities explained.
WTI bullish, but risk-off markets and speculative bids could be short-lived
On the other hand, we should also be paying attention to the conflict in Libya. The analysts at TD Securities noted that the NOC has considered shutting El Shararah, citing nearby clashes – "suggesting that the Libyan conflict poses a more imminent threat to oil supplies, particularly as Turkish troops arrive in the country to support the GNA government."
At the same time, markets are expecting a period of higher inflation in 2020 and when coupled with OPEC+ supply cuts, the environment is bullish on a fundamental front.
"A fully backwardated curve in WTI and Brent will also help the bulls, as a positive roll yield reemerges – providing yet another point of interest for money managers. That being said, traders should be mindful of any signs that risk appetite is waning,"
the analysts at TD Securities argued.
WTI levels
Supported by the 21-day moving average, the price of WTI has been rising in a steep channel which the price broke the resistance of in a spike only to fall back to the channel resistance and into consolidation. Bulls are above the 13th Sep. highs and has almost completed a full retracement of the of April highs around 66.70