Oil Prices Slide as US Lifts Sanctions Against Venezuela

USOIL Analysis

Oil prices have surged close to 30% since June, due the massive amount of supply cuts by Russia, Saudi Arabia and other OPEC+ members. Although there was a pullback this month, the Iran-Hamas war sparked volatility and has renewed upward pressures.

Middle East is an important energy hub and the events undermine efforts to normalize relations between Israel and Saudi Arabia. This could improve the rapport with the US and open the door a less aggressive stance around oil supply from one of the world's largest producers.

Another key consideration is Iran. The Biden administration has let the country's increasing oil production slide, despite sanctions, as this helped contain elevated prices. Even though there hasn't been any direct involvement in the attacks, Tehran is considered a supporter of Hamas. As such, the US may now adopt a stricter stance around Iranian oil and any deal around the nuclear program that would lift restriction has become more difficult.

The situation in Middle East has so far been somewhat contained, as Israel has stayed out of the Gaza Strip for now and there are efforts by the US and others to prevent a spillover in the region. However, the bombing of a Gaza hospital has increased chances of an escalation, even though Israel has denied any involvement. ^[1]

Any escalation can send USOil higher. Above the EMA200 (black line) immediate bias is on the upside and bulls can push towards 95.05-96.20, but will likely need fresh impetus.

The commodity slides today though, as the US suspended sanction on Venezuelan oil, welcoming the electoral roadmap agreement in the country. The US Treasury issued a six-month license that allows transactions involving the oil and gas sector in Venezuela. ^[2]

This keeps risk of a return to the month's lows 81.52, but the downside appears well protected and sustained weakness does not look easy under current conditions.