Oil Pushing Downwards Amidst “Geopolitical Fears Recalibration”

Oil has fallen about 2% after escalation fears wanes off in Middle East following coalited air strikes on Syria over the weekend.

105 missiles were launched by the United States, France and Britain targeting three chemical weapons production units in Syria as a form of retaliation for an alleged chemical attack on April 7th. Oil prices had risen by about 10% on the back of the proposed strikes on the war-stricken nation – investors due to geopolitical-induced risk aversion delved on gold and/or US. Treasuries and Oil. “As a macro asset-allocator, if you want to hedge your portfolio against geopolitical risk, your prime candidate is oil, especially if that risk is in the Middle East.” ANZ bank reported

Investors are more relaxed as to the escalation risk following the coalited air strikes. Harry Tchilinguiran, Global Head of commodity market strategy, reported that “As far as developments in Syria are concerned, the market has had a sigh of relief in the sense that there is no escalation, either diplomatically, or on the ground, following the intervention by the U.S., France and the UK,”.

Another fundamental risk to this drop, is a pickup in US drilling activity. The U.S. energy companies added seven rigs in the past week, totaling 815 rigs – highest since March 2015.

Technically, WTI oil is finding resistance at the 67.50 price level which is just about 90 points away from the yearly high at the 66.62 price level – possibly establishing this in-between area as a plausible resistance zone (highlighted in yellow) (see Daily chart below).

Price is currently bullish on the medium-term, however the aforementioned area could drive price further down. Hence, traders can choose to wait for a price dip before going long.

Alternatively, for the bears, a price break below this plausible resistance zone can open room to a shorter term downward push in price with targets set at the 62.50 and 60.00 price areas.

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