Oil erases earlier gains

Oil is capping the week with a volatile session. Prices climbed and traded as much as 3% higher earlier today in response to US and UK airstrikes at military targets linked to Iran-backed Houthi in Yemen. This was the first direct attack of US-led coalition forces on Houthi targets inside Yemen and triggered fears of the Middle East situation escalating further, with a risk of disruption to oil supply. US and UK authorities said that strikes were retaliation for attacks on commercial ships in the Red Sea and were aimed to deter Houthi from further attacks on global trade. However, Houthi has already said that they will continue to attack 'Israeli-linked ships' and also will retaliate against US and UK interests in the region.

However, price halted advance in the early afternoon as situation has been rather calm since overnight bombing campaign as it had no impact on physical oil market. Nevertheless, tensions are on the rise and Middle East remains an important factor to watch for oil traders. Armed conflict between the West and Iran or resumption of hostilities between Yemen and Saudi Arabia are scenarios that would be very disruptive to the oil markets, but fortunately those are currently low-probability scenarios and all parties involved want to avoid them.

Taking a look at Brent (OIL) chart at H1 interval, we can see that price broke above $80 resistance zone earlier today but bulls failed to sustain the move. A reversal occured in the early afternoon and prices slumped over 3% off the daily highs. OIL broke back not only below $80 area but also below $78.75 support zone and the lower limit of local market geometry at $78.40. Price is currently testing 50-hour moving average (green line) with upward trendline being located slightly lower, in the $78 area.

Source: xStation5