Brent crude oil price went parabolic on Friday, moving to a high of $76.50, its highest point since January and 35% above the lowest point this year. Similarly, the West Texas Intermediate (WTI) price soared to $77.53, up by over 40% from the year-to-date low.
Israel and Iran conflict escalates
Brent crude oil price surged on Friday, continuing the gains that started in May after Israel attacked Iran’s nuclear sites and killing some senior officials. This attack happened after the International Atomic Energy Agency (IAEA) ruled that Iran was non-compliant with its international obligations, leading to potential sanctions.
This was the first attack by Israel on Iran’s nuclear program, and Benjamin Netanyahu ruled that more attacks were likely. Iran, on the other hand, warned that Israel and the US would suffer a harsh blow. The US has denied any involvement in the crisis.
Brent crude oil jumped for two main reasons. First, analysts now expect that the crisis will lead to more supply chain disruptions in the coming weeks. This could see Iran and its proxies block key passages as the wa escalates.
Second, Brent crude soared because the new attacks will likely affect the ongoing talks between the United States and Iran. Just on Thursday, Trump sent the following post:
“We remain committed to a Diplomatic Resolution to the Iran Nuclear Issue! My entire Administration has been directed to negotiate with Iran. They could be a Great Country, but they first must completely give up hopes of obtaining a Nuclear Weapon.
Therefore, it is unclear whether the talks between Iran and the US will continue. That deal would have been bearish for oil prices because it would see the US removed sanctions, which would boost oil production.
US and China deal
Brent crude oil price also jumped after the US and China reached a trade deal, which Trump called “GREAT” in a post. The deal lowers trade tensions between the two biggest economies in the world.
Trump noted that the agreement will see China ship rare earth materials and magnets to the United States. The US, on the other hand, will let Chinese students learn in its universities.
Analysts hope that the US will reach more deals with other countries, especially the European Union. Trade deals would be bullish for crude oil because of the demand aspect.
Further, oil price reacted to the latest US inflation data. According to the Bureau of Labor Statistics (BLS), the headlin inflation rose from 2.3% in April to 2.4% in May this year. Core inflation remained unchanged at 2.8%.
These inflation numbers mean that the impact on tariffs so far is a bit limited, which may push the Fed to cut interest rates. Oil prices do well in periods of low rates.
Brent crude oil price analysis
Brent crude oil price chart | Source: TradingView
The daily chart shows that Brent price bottomed at $58 and formed a double-bottom pattern with a neckline at $68.57. A double-bottom is one of the most bullish patterns in technical analysis, which also explains why it has surged.
Brent jumped above the 50-day and 200-day Weighted Moving Averages (WMA), while the Relative Strength Index (RSI) and the MACD have all pointed upwards.
Therefore, the most likely situation is where the price of crude oil jumps to $80 as the crisis escalates. The alternative scenario is where it drops and retests the support at $68.57 and then resumes the uptrend.
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