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Crude oil edgy on Iran, DOE inventories (USO)

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Yesterday crude oil broke a four-week slump amid escalating fears as tensions increased in Iran. Fears of key disruption of supply routes on reports that Teheran planned to hold drills practicing the closure of the Strait of Hormuz.

The Strait of Hormuz is narrow sea passage through which about 15.5 million barrels or one sixth of the global consumption of oil flows via tankers. Geopolitical watchdogs have been warning the world that disrupting the narrow sea passage can be potent weapon if Iran were attacked as a result of growing international unease about its nuclear program.

Looking at fundamentals, traders need to keep an eye on few factors that are at play.

Geopolitical issues are likely to diminish somewhat as the Strait of Hormuz remains open and Iranian and others run naval exercises in the strait.

However, this is nothing new and for the most part not unprecedented for this region of the world. As traders digest the headlines and look at the situation with cooler heads, traders should see the risk unwind to some extent.

The Department of Energy is expected to report U.S. crude inventories fell the most in weeks, which may help temper the bears.

The technical picture is unchanged from yesterday. Crude price on the front month contract is testing upward trendline. A break and close below the trendline exposes price to the next support level around at $94.60.

Near-term resistance can be found around $101.80. A close above $103.35 would shut down the bears and invalidates the downside bias established by a bearish engulfing candlestick pattern from November 17.

Traders can gain exposure to the oil market through the United States Oil Fund LP ( USO , quote ), which seeks to reflect the performance of the spot price of West Texas Intermediate (WTI) light sweet crude oil through the futures market.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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