Brent crude oil price may crash to $58, rare chart pattern suggests

Brent crude oil price rose a bit on Tuesday as the US launched strikes against some Iranian targets and as Israel’s Benjamin Netanyahu urged the military to strike Hezbollah targets in Lebanon. It was trading at $95, a few points above this week’s low of $93.45, and a double-top pattern points to an eventual drop to $58.

US strikes Iranian targets

Brent and the WTI benchmarks rose slightly after the US launched attacks against some Iranian targets. In a statement, the US Central Command said that it hit some missile-launching sites and Iranian boats that were attempting to lay mines. 

At the same time, Benjamin Netanyahu, who has opposed any talks between the US and Iran, ordered his military to intensify attacks against Hezbollah. This is important because Iran has insisted that any deal with the United States will also cover Lebanon.

A key risk for the ongoing US-Iran talks is that Israel will attempt to disrupt them and push the US back to war. Netanyahu and allied politicians in the US, including Senator Ted Cruz and Lindsey Graham, believe that any deal with the US will leave Iran better off. 

For one, it will give Iran sovereignty over the Strait of Hormuz, provide some sanctions relief, and unlock some of the funds that have been held abroad for years. The total amount is in the billions of dollars.

The proposed deal between the US and Iran will see Iran reopen the Strait of Hormuz without tolls, a 60-day ceasefire, and the establishment of a framework for nuclear talks. In this period, the two sides will have broader talks on Iran’s nuclear program.

Trump hopes that his deal will be better than the one Obama signed a decade ago. To achieve that, he has urged other Middle East countries to join the Abraham Accords. In a statement on Monday, he hinted that he would push Iran to join the accords, a difficult thing since Iran does not recognize Isreal, which it sees as an occupying entity. 

A deal would be bearish for oil prices

A deal between the US and Iran would be highly bearish on crude oil prices in the coming days or weeks. For one, the world energy market has already found millions of barrels to fill the gap made by the Strait of Hormuz closure. For example, Saudi Arabia is selling over 7 million barrels of oil per day through the Red Sea. 

At the same time, there are millions of barrels stuck near the Strait of Hormuz that are ready to go. All this supply would push crude oil prices lower in the near term.

Brent crude oil price technical analysis

Crude oil price chart | Source: TradingView

There are signs that crude oil prices have peaked. The daily chart shows that Brent formed a double-top pattern at $114.97 and a neckline at $86.25, its lowest level in March this year. A double-top is one of the most common bearish signs in technical analysis.

It has moved below the 50-day moving average and the 38.2% Fibonacci Retracement level. The Relative Strength Index (RSI) has pointed downwards. 

Therefore, the price will likely continue falling as sellers target the key support at $86. A move below that level will point to a drop below $60 in the near term. This target is estimated by finding the double-top’s height, by subtracting $86 from $114 ($28). Subtracting it from the neckline gives a target of $58.