Crude oil wavers on Iran deal

US crude oil, represented by the West Texas Intermediate (WTI) benchmark for oil pricing, had a relatively rare up-day on Tuesday. This occurred even in the wake of the nuclear agreement with Iran being reached, which would lift sanctions and purportedly flood an already glutted market with Iranian oil.

This unexpected rise in oil prices on Tuesday can be attributed to a couple of different factors. First, the price of crude had already been dropping for the past three weeks, partly in anticipation of the Iranian deal, and had therefore had enough time to absorb and price-in the potential ramifications of the deal being successfully reached.

Second, many analysts believe that there will be a substantial ramp-up period for Iranian oil to hit the market in significant quantities. Therefore, while the longer-term picture for global oil oversupply may appear bleak with the inclusion of Iranian oil, prices in the short-term have not yet been critically affected.

While Tuesday may have seen a climb in oil prices due to these factors, Wednesday has seen a retreat back under $53 for WTI in early trading as investors continue to fret over a persistent oversupply situation that seemingly has no end in sight.

From a technical perspective, WTI is wavering within a relatively tight trading range under both its 200-day moving average as well as the key $54 resistance level. It is also trading well below a major downtrend line extending back to last year’s highs above $107. Price action has formed a rough bearish, or inverted, flag pattern that could serve as a downside continuation pattern if broken down. If US oil continues to trade below the noted $54 resistance, clear downside support targets are at the $50 psychological level, followed by $47, and then the $42-area multi-year low that was hit in March.