Oil tests key support as supply concerns ease and Trump hails progress in US-Iran talks

Crude oil has fallen to $90 a barrel on Wednesday, extending losses into a sixth straight session and reaching its lowest level in more than two weeks, as traders continue to monitor diplomatic efforts to end the conflict in the Middle East and as supply concerns ease.

Saudi pipeline restarts

Brent is down 5% so far this week, falling below $100 a barrel, while WTI has fallen below $90. The steep decline comes as Saudi Arabia has signaled the reopening of the East-West pipeline and resumed exports from its Red Sea coast, moves that have helped ease supply concerns.

Oil had surged almost to $110 after Saudi Arabia shut the key pipeline two weeks ago following a series of drone strikes that destroyed pumping stations.

The pipeline runs from the kingdom’s main oil fields in the east to the Red Sea port of Yanbu and has enabled Saudi Arabia to keep exporting oil despite Iranian attacks on ships in the Strait of Hormuz. The pipeline can reroute around 4 million barrels per day, equivalent to around 4% of global supply, and has a capacity of 7 million barrels per day, highlighting its importance, particularly while traffic through the Strait of Hormuz remains low.

Iran has said it could reopen the Strait of Hormuz within seven days. Saudi Arabia has also loaded more ships at its Ras Tanura port, raising expectations of increased exports through the strait.

Diplomatic hopes rise

Oil has fallen as the market grows more optimistic about a diplomatic solution in the Middle East, with President Trump and the Iranian president both attending the U.N. General Assembly in New York.

President Trump said that the US and Iran held very good, productive talks in New York, raising hopes that negotiations could help ease tensions and end the conflict. This was the first known direct contact between the two sides since June.

The Iranian president is due to speak on Thursday, and the market will be watching closely for any signs that discussions between the two sides are taking place.

Markets will remain laser-focused on developments surrounding the Middle East and oil prices. The 10% decline in oil prices over the past week is not just about oil. It has eased inflation fears, helped pull Treasury yields lower and boosted US equities back towards record highs.

The market will want to see an increase in vessels transiting the Strait of Hormuz for prices to fall further. Without this, or if there are signs that a diplomatic solution is failing to materialise, the recent decline in oil could attract dip buyers.

Oil technical analysis

Having broken out of the symmetrical triangle pattern, oil ran into resistance around $106, the 23.6% Fibonacci retracement of the move from the $55 low to the $120 high. From there, the price turned sharply lower, before finding support at the 50 EMA around $89.

Supported by the RSI below 50, sellers will look to break below $89 and then $88, the 50% Fibonacci retracement level. A break below this area would expose the 200 EMA around $82, ahead of the 61.8% Fibonacci retracement at $80. A sustained break below $80 would turn the outlook considerably more bearish.

Should the 50 EMA support hold, buyers will look to push above $95, around the 32.8% Fibonacci retracement level, before attention turns to $100, the psychological level, and then $105, the 23.6% Fibonacci retracement.