Crude oil prices at crossroads amidst geopolitical tensions in red sea; market awaits US-led task force action

By Bhavik Patel

Crude oil prices are steady after rising for nearly 4 trading session on the trot. Since mid-November, Houthi rebels in Yemen have significantly stepped up attacks on commercial shipping vessels in-transit via the lower Red Sea in retaliation for Israel’s war on Hamas in the Gaza Strip.

Market has reacted by pushing crude prices higher but now it has come to point where market is waiting that US led task force will manage to provide safety for the passage of Red sea or if the attacks intensify.

U.S. crude oil production has surged this year to extend America’s lead at the top of the ranking of the world’s biggest oil producers. This has also put cap on the prices as typically demand for crude is weak during the year-end and US shale pumping more crude means weak demand and more supply.

At the latest OPEC+ meeting, Russia said it would deepen the export cut to 500,000 bpd in the first quarter of 2024, with May and June of 2023 being the reference export levels for the cut, which will consist of 300,000 bpd of crude and 200,000 bpd of refined products. It remains to be seen if Russia will cut what it has proposed or not.

In MCX, momentum oscillator RSI_14 is around 50 showing neutral trend. We have seen strong recovery from oversold region of 5670 till 6280 and now bulls are showing signs of exhaustion. ‘Shooting star’ candlestick formation on daily scale accompanied by sideways candle shows strong resistance around 6300 zone.

We believe prices are waiting for next trigger in form of either rate cut expectation from US Fed or any further escalation from Red sea to move the needle above 6300. For next week, expect prices to consolidate in the range of 5950-6350.

(Bhavik Patel is a commodity and currency analyst at Tradebull Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)