Oil drops despite mounting geopolitical tensions over the weekend

• WTI Oil drops below $85 after Iran’s drone attack on Israel ended without any massive effects. 
• Oil price set to test support at $84.25 ahead of headline-driven week.
• The US Dollar Index slides below 106.00 as risk on sentiment seems to be taking over.

Oil prices retreat on Monday as markets heaved a big sigh of relief after the Iranian retaliation against Israel was well-communicated and led to very little damage, with investors hopeful that any escalation will prove contained. During the weekend, the attack took place, consisting of a drone and missile attack, from which more than 99% got neutralised by defence systems. Meanwhile, Iran has said it is not seeking further escalation and even the US has already been in touch with Iran, which means the diplomatic machine is working to avoid further escalation.

The US Dollar, meanwhile, is sliding below 106.00 with some outflows out of the Greenback. Global markets seem to be recovering,  with all equities across the board in the green, weighing on safe-haven assets such as the US Dollar.  Looking at the economic calendar, traders can gear up for the US Retail Sales numbers on Monday. 

Crude Oil (WTI) trades at $84.29 and Brent Crude at $89.07 at the time of writing.

Oil news and market movers: Sigh of relief

• Goldman Sachs Analyst Daan Struyven said to Bloomberg that a $5 to $10 risk premium should be added into the Oil prices when the Israel-Iran situation further escalates.
• Iran has already come out on Monday morning to say it is not looking for further escalation of tensions in the Middle East.
• Overall risk on sentiment rolls through markets after tensions in the Middle East are easing.
• Upside risk to Oil prices remain in the coming weeks in case of any Oil embargoes against Iran as the country is the third-largest producer within OPEC.

Oil Technical Analysis: Easing for now with tail risk in mind

Oil prices are easing on Monday after markets scale back the risk premium in Oil that got priced in ahead of the weekend. With investors applauding the deescalation, a test towards $83.34 (purple line) is key. In case that line snaps, expect to see further falls towards $80 as more risk premium is priced out.

In case tensions escalate again and last week’s high at $87.12 gets broken, the $90 handle should come into grasp. One small barrier in the way is $89.64, the peak from October 20. In case of further escalating tensions in the Middle East, expect even $94 to become a possibility, and a fresh 18-month high could be on the cards. 

On the downside, $83.34 is the first level to have a look for after a very clean break and test for support on April 1 and 2. Should it not hold, $80.63 is the next best candidate as a pivotal supportive level. A touch softer, the convergence with the 55-day and the 200-day Simple Moving Averages (SMAs) at $79.32 should halt any further downturn. 

US WTI Crude Oil: Daily Chart