Crude oil extended its decline and remained in a bear market after President Donald Trump met with Qatar’s Prime Minister. Brent, the global benchmark, fell to $91.4, down 22% from its October high. Technicals suggest that the downward trend will continue in the near term.
Crude oil price falls as Trump considers next moves on Iran
Brent and the West Texas Intermediate have continued their downward trend this month as traders reacted to the potential events in the US-Iran war, especially after the last midterm elections in the United States.
Trump faces three potential actions. In the first one, he can decide to escalate the war and hope that the regime will either fall or sign a good deal. Trump can also decide to let status quo continue, where he continues the economic pressure and maintains the blockade. Alternatively, Trump can decide to intensify talks and hope that he can reach an agreement.
However, each of these options carry risks. If he decides to escalate, Iran has warned that it will have an indiscriminate response, targeting key Gulf countries and Israel. Its potential targets include desalination plants, data centers, airports, and energy infrastructure in the region.
On the other hand, the status quo is also highly expensive for the US, with estimates showing that the government is spending billions of dollars a month. The incoming Congress may decide to cut off funding for the war.
Most importantly, Iran has set conditions for negotiations, with officials saying the US must first meet seven demands. Some of these demands include ending of sanctions and the blockade, and for the US to leave the region.
In a statement after meeting the Qatari prime minister, President Donald Trump said that the Iran war was effectively over, a claim that Iranian officials rejected. Trump believes that he can continue the blockade on the US ports and the newly launched Taskforce Iron Gate, which seeks to cut off trade by land through the Caspian Sea. In a statement, Iran’s Mohsen Rezai said:
“The war on Iran has already wrecked the US government. But Washington flails like a desperate gambler. FOLD YOUR HAND. STOP manufacturing FAKE NEWS about imaginary talks.”
Brent crude oil price technical analysis
Crude oil price chart | Source: TradingView
The daily chart shows that Brent has been in a strong sell-off in the past few weeks, moving from $117 in October to $91.46. It has slipped below the 50% Fibonacci Retracement level.
Brent has also dropped below the 50-day Exponential Moving Average (EMA) and the Supertrend indicators.
Further, the Relative Strength Index (RSI) and the MACD indicators have been in a steady downward trend, a sign that the sell-off is gaining momentum.
Therefore, Brent will likely drop further, potentially to the 61.8% Fibonacci Retracement level of $88.12. In most cases, this retracement is usually important since that is where most pullbacks tend to happen. A drop below that level will point to more downside, potentially to the psychological level of $85.
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