Middle East Fighting Intensifies

Crude prices rose firmly yesterday as hostilities between the US and Iran show no signs of abating after the two sides resumed fighting on Tuesday. Following a brief pause in the conflict, during which Trump claimed that talks had resumed and were looking hopeful, tensions erupted once again with a series of attacks. The US military has conducted airstrikes on Iranian targets while Iran has been targeting SU sites in neighbouring countries. Meanwhile, Houthi rebels have been carrying out attacks in the Red Sea attempting to enforce a naval blockade on Saudi Arabia while the US and Saudi forces then attacked Iranian backed militia in Iraq. Fighting has continued overnight and neither side is showing a willingness to re-enter the peace process for now. While this backdrop remains, oil prices should continue to grind higher again.

Huge EIA Inventories Drawdown

Away from the developments in the Middle East, crude prices were also bolstered yesterday by news of a large and unexpected drawdown in US commercial crude stores. The EIA reported a huge 7.2-million-barrel drawdown, in stark contrast to the prior week’s 2-million-barrel surplus and well below the 0.7 million-barrel increase the market was looking for. The data reflects the ongoing tightening in the domestic physical market as inventories continue to run down stocks. Additionally, the US Strategic Petroleum Reserve was seen falling for an 18th straight week, not at its lowest level since 1983, in further evidence of rising domestic demand.

Technical Views

Crude

The sell off in crude has stalled for now into the 77.65 level with price now attempting to get back above the 84.60 level and the bear trend line from YTD highs. If bulls can clear this marker, focus turns to 95.06