Oil prices are down about 2% in the first half of the day. Brent is holding around $98, while WTI is falling to $87. The drop in prices is driven mainly by crude supplies from the Persian Gulf that are significantly higher than originally expected.
- Reuters reports that the weekly average flow through the Strait of Hormuz has already reached 19 million barrels per day, which is more than 80% of the long-term average from before the outbreak of the conflict in Iran.
- Importantly, according to Reuters, Vortexa, Kpler, and Bloomberg data, the increase in flows is not evenly distributed. Saudi Arabia and Iraq have increased their exports the most. Exports of oil and products from Iran have fallen to nearly zero, implying a loss of control and initiative on the part of the Islamic Republic.
- Also relevant is Yemen’s recent success in fighting the Houthis. Government forces have recaptured the port city of Mokha. The government regaining the initiative reduces Houthi control over the Red Sea area and may be the beginning of a larger offensive.
- This sentiment is confirmed by an announcement from Saudi Arabia, which clearly lowered wholesale prices for buyers in Asia. Arab Light fell by $5 per barrel, and Arab Medium and Arab Heavy were cut by $5 per barrel.
- The G7 countries have also reached an agreement to release fuel and oil reserves, with a particular focus on diesel, which is currently in the shortest supply. Through the IEA, countries are to release 100 million barrels of products and crude over the next four months.
Technical analysis of OIL (D1)
The decline from the local peak at $109 makes it possible to draw the upper boundary of a downward channel. A key test for sentiment and supply strength will be a test of the lower boundary of the upward trend that has been in place since June. Breaking below support around $97 could open the way for sellers to test support at $94.5, which is fairly close to the long-term regression line (around $89). If buyers want to keep the initiative, it is imperative to break the emerging downtrend and move back above about $102. Source: xStation5
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