Brent crude oil price sends mixed signals amid US-Iran quagmire

Brent crude oil price remained in a tight range on Tuesday as investors assessed the state of the ongoing ceasefire between the US and Iran. It was trading at $94, inside the narrow range it has been at in the past few days. 

US and Iran quagmire continues

Brent and West Texas Intermediate are in a narrow range as investors this week amid heightened confusion about the state of play between the US and Iran. 

In a statement on Saturday last week, President Donald Trump said that talks between the two countries were at an advanced level. This was a major reversal as most analysts were expecting that the US would launch massive kinetic attacks against Iran.

The two sides continued exchanging notes throughout last week. On Friday, Trump announced that he was going to the Situation Room to make his “final determination” on whether to start a 60-day ceasefire. He left the meeting without saying a word.

On Sunday, we reported that Trump replied to Iran’s offers by changing the language of the deal. According to media reports, he simply wants Iran to remove mines, reopen the Strait of Hormuz, and commit to no nuclear weapons, with the promise that the US will ease some sanctions and end its blockade. 

In a statement on Monday, Iran’s Foreign Ministry announced the end of talks with the US, citing Israel’s bombardment of Lebanon and the gross violations by the United States. With the US markets open, Trump intervened by saying that talks were on and that Israel and Hezbollah would end their attacks. 

Therefore, crude oil prices are wavering as investors wait for more details. On the one hand, extending the ceasefire will lead to more supplies and put pressure on prices. A resumption of fighting, which is possible, will make the situation worse because of the ongoing inventory drawdown. 

One main reason why the continuation of the Strait of Hormuz closure is possible is that Israel will not end its bombardment of Lebanon. That’s because Israel vehemently opposes the ceasefire between the US and Iran. It is Netanyahu’s goal to either change the regime in Tehran or leave it as a failed state. 

Brent crude oil price technicals are sending mixed signals

Brent chart | Source: TradingView

Technicals are also sending mixed signals. On the bearish side, the price has formed a double-top pattern at $114 and a neckline at $86.26. This pattern normally leads to more downside over time. 

On the other hand, oil has formed an island reversal pattern. This pattern happens when an asset consolidates after a big down-gap. In most cases, it normally leads to a bullish reversal. 

Therefore, by measuring the distance between the double-top level and its neckline, then projecting that same distance below the neckline, we can predict that crude oil prices will tumble below $60. This view is supported by the fact that oil remains below the 50-day and 100-day moving averages.

On the other hand, the island reversal pattern should not be ruled out as the US-Iran war is still volatile.