empty
30.10.2024 12:48 AM
Oil: To Be Punished, Not Pardoned

The market acts first and asks questions later. News that Israel struck military, rather than oil or nuclear infrastructure in Iran led to a 6% drop in oil prices. Brent and WTI saw their worst performance since 2022. However, investors took a more measured view the next day, realizing that Israel never intended to target Iran's oil or nuclear sites – so why react so strongly?

For a long time, geopolitical tensions have acted as a buffer against a major collapse in oil prices. Conflicts between Israel, Hamas, Hezbollah, and Iran have kept traders on edge, pricing in premiums for Middle Eastern escalation risks. With a third of the world's oil coming from this region, a flare-up could have pushed Brent above $100 per barrel.

The reality proved less dire than expected. Israel limited its response to strikes on military sites in Iran. Tehran, usually aggressive, adopted a restrained stance, leading markets to assume the conflict was resolved. They returned to fundamentals, which now point to a gradual shift in oil markets toward a surplus, pressuring prices downward. Unsurprisingly, reversal risks indicated Brent's shift from a bullish to a bearish outlook.

Dynamics of Brent Reversal Risks

This image is no longer relevant

But is the Middle East conflict truly resolved? Only six months passed between the April tensions between Israel and Iran before they flared up again. Furthermore, declining oil prices amid slowing demand and increased production may prompt OPEC+ to rethink its planned phase-out of production cuts from December. Citi recently downgraded its three-month forecast for Brent from $74 to $70 per barrel, which is unlikely to satisfy OPEC.

Oil does have lifelines, but rising prospects of a Donald Trump win in the U.S. presidential race paint a distinctly bearish outlook. Large fiscal stimuli could drive 10-year Treasury yields back above 5%, heighten inflationary risks, and force the Federal Reserve and other central banks to maintain high rates, negatively impacting the global economy and oil demand.

This image is no longer relevant

The IMF projects global GDP growth of 3.2% in 2025, but Trump's proposed tariffs could reduce this by 0.8 percentage points. By 2026, this figure could reach a 1.3 percentage point cut. The IEA, OPEC, and the U.S. Energy Information Administration already anticipate slowing oil demand. Their forecasts might need downward revisions, as the surplus in the oil market may arrive sooner than expected, fueling further bearish momentum.

Technically, Brent shows consolidation on the daily chart within a $74.15-76.75 per barrel range. A breakout below this range would justify initiating or adding to short positions.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

Has Common Sense Prevailed? (High probability of #SPX growth and a drop in gold prices)

On Monday, the United States announced "significant progress" in trade talks with China following a two-day meeting in Switzerland over the weekend. Markets reacted to this news with a gap-up

Pati Gani 11:00 2025-05-12 UTC+2

GBP/USD. An Important Week for the Pound

The GBP/USD pair is again under pressure due to the broad strengthening of the U.S. dollar. Last week, the pound attempted to break into the 1.34 zone in reaction

Irina Manzenko 10:49 2025-05-12 UTC+2

The Market Will Face Reality

How quickly things change on the financial markets! Before America's Liberation Day, investors viewed the 10% universal import tariff as disastrous. Now, it's seen as the most favorable option

Marek Petkovich 09:18 2025-05-12 UTC+2

What to Pay Attention to on May 12? A Breakdown of Fundamental Events for Beginners

There are no macroeconomic events scheduled for Monday. Fundamental developments will also be limited, but at this point, it is entirely unclear which factors are influencing price formation. The pound

Paolo Greco 06:51 2025-05-12 UTC+2

EUR/USD. Weekly Preview. Prepare for Price Turbulence

The upcoming week promises to be volatile. First, the market will react to the results of the Geneva meeting between representatives of the US and China. Second, key reports

Irina Manzenko 05:34 2025-05-12 UTC+2

GBP/USD Overview – May 12: Business as Usual...

The GBP/USD currency pair moved slightly higher on Friday, although the British pound had no real reason to grow that day or throughout the week. Let us recall that

Paolo Greco 03:48 2025-05-12 UTC+2

EUR/USD Overview – May 12: The Dollar's Success Is Unstable

The EUR/USD currency pair slightly rebounded upward on Friday, and overall, it has been gradually sliding down for several weeks. The movement has been so sluggish that we recently classified

Paolo Greco 03:48 2025-05-12 UTC+2

US Dollar. Weekly Preview

The U.S. economic calendar for the upcoming week won't be overloaded with data. If we leave out the secondary reports, only April's Consumer Price Index (CPI) remains, which will

Chin Zhao 00:59 2025-05-12 UTC+2

British Pound. Weekly Preview

The wave pattern of the pound and the market's interest in the news currently reflect those of the euro. Last week, the market had a chance to reduce demand

Chin Zhao 00:59 2025-05-12 UTC+2

Euro Currency. Weekly Preview

Will the news background have any real significance in the upcoming week? In my opinion, the market seems largely uninterested in economic and fundamental data. Consider this: major events like

Chin Zhao 00:59 2025-05-12 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.