Investing.com – The direction of oil markets in the coming week will be determined by two factors. Firstly, the potential escalation of the conflict in the Middle East and its impact on oil supplies in the region. Secondly, the weekly update on US crude stockpiles, which will be released on Wednesday.
In the previous week, crude prices experienced significant fluctuations, ultimately finishing up by as much as 7%. The initial 4% gain on Monday due to concerns over the Middle East war was reduced to just 1% by Thursday. This was attributed to data showing the worst weekly US crude build in eight months, along with record production levels. However, on Friday, oil prices surged by almost 6% as the United States imposed its first sanctions on those violating the G-7 price cap on Russian oil. The Biden administration has yet to announce whether it will take a strict stance on Iranian oil. However, pressure is mounting from various fronts for action to be taken. Iran itself has continued to demonstrate its support for Hamas, holding state-organized rallies in solidarity with the Palestinian group. In the US Congress, Republicans have also voiced strong opinions, advocating for measures to prevent Iran from producing oil. Treasury Secretary Janet Yellen has stated that nothing is off the table when considering new sanctions on Iran and Hamas. However, implementing effective sanctions on Iran may prove challenging, as the crisis in Israel poses a new obstacle for the world economy and the Biden administration’s efforts to combat inflation and stabilize energy prices.
Furthermore, the weekly update on US crude stockpiles will be closely watched. If the trend continues, there could be another build in crude stocks due to the ongoing refinery maintenance season. However, a significant increase in exports could offset this build. In the previous week, crude exports fell by almost 2 million barrels per day, contributing to the rise in stockpiles. Nevertheless, the US Energy Information Administration (EIA) reported that crude exports reached a record high of nearly 4 million barrels per day in the first half of the year. Additionally, the EIA estimated that US crude production reached 13.2 million barrels per day, the highest ever recorded. Despite the reduction in the number of active oil rigs, US shale oil basins have demonstrated higher efficiency in output, leading to increased production levels.
In terms of oil prices, the New York-traded crude for delivery in November settled at $87.69, up 5.8% for the week. Meanwhile, London-traded crude settled at $90.89. The technical price outlook for WTI suggests that immediate resistance is seen at the Daily Middle Bollinger Band of $88.10, followed by $88.30. Clearing these levels could lead to a rally aiming to retest $96.50. On the lower end, stability above the 100-week SMA of $86.20 is considered active support. A sustained break below $86.60-$86.20 may indicate sellers gaining confidence and potentially result in a drop to $83.
Gold prices experienced significant volatility in the previous week, with a final trade of $1,941.50 per ounce on Friday, up 3.1% for the day. The rally in gold prices was largely driven by the escalating conflict in the Middle East, which increased safe-haven demand for the precious metal. Despite the rally, the US dollar index (DXY) ticked up for a second day in a row, indicating a resumption of the greenback’s upward trend. Typically, gold moves inversely to the dollar. The technical outlook for spot gold suggests that the next immediate resistance is seen at $1,938 and $1,942. A continuation above these levels could open the door to retesting the previous month’s high of $1,953, potentially leading to a new record high after retesting $2,080. However, the 4-hour chart shows overbought conditions, signaling a possible softening of momentum and a potential pullback towards the breakout zone at the 200-day SMA of $1,929 and the 100-day SMA of $1,923. If selling pressure pushes the metal below $1,923, further declines to the 50-day EMA of $1,897 and the Daily Middle Bollinger Band of $1,878 may be expected.
In terms of natural gas, the most-active contract on the New York Mercantile Exchange’s Henry Hub settled at $3.2360 per mmBtu, down 3.2% for the day. Despite the Energy Information Administration reporting a build of 84 billion cubic feet in storage, which was lower than expected, natural gas prices fell by 2% for the week. Total gas in US storage was at 3.529 trillion cubic feet, up 9.8% from a year ago. However, storage levels were more than 20% higher earlier this year and have since decreased to just 4.8% higher than the five-year average. The price outlook for natural gas suggests that stability below the $3.47-$3.37 level will keep prices in consolidation mode, with a potential retest of the support zone at $3.14 and the Daily Middle Bollinger Band of $2.97. A further drop could occur if this zone fails to hold as support, leading to a decline to the 50-day EMA of $2.84 and the 100-day SMA of $2.66. On the other hand, a resumption of the bullish trend would require gas to regain momentum above the 50-week EMA of $3.35 and establish firm acceptance above the swing high of $3.47. The next major resistance levels would then be the 200-week SMA of $3.77 and the 50-month EMA of $3.84.
