Russia’s top Ukraine negotiator, Vladimir Medinsky, says it appears the sides are moving closer to peace, although much still depends on all participants in the process. The headline offers some encouragement, but the qualification matters. Progress toward an agreement still requires the parties to turn that optimism into concrete commitments.
Following the talks in Abu Dhabi, Medinsky reported common ground on some issues and continued differences on others, with discussions set to continue. Russia and Ukraine also agreed to a large-scale prisoner exchange. Those are steps forward, but significant issues remain unresolved.
Peace hopes could weigh on oil’s risk premium.
For crude oil, the potential implication is a reduction in the premium traders pay for the risk of supply disruptions. A credible path toward peace could ease concerns about attacks on energy infrastructure and raise expectations for fewer restrictions on Russian oil flows over time.
That would be a potentially bearish development. However, a peace agreement would not automatically remove sanctions or immediately bring additional barrels to market. The terms of any agreement, the timing of implementation and the response from Western governments would all matter. Of course, there is also what is happening in the middle east. That is also in play of course.
For now, the distinction is between hopes for a deal and an agreement that changes the supply outlook. Encouraging headlines can give sellers a reason to push. Sustained follow-through would require evidence that the underlying risks are actually easing.
The headlines provide the catalyst. The technicals define the risk.
The diplomatic headlines provide the catalyst, but the technical levels will help determine whether sellers can turn that optimism into a sustained move lower in crude oil. Can they break support and take control, or will buyers lean against that support and force a rotation back higher?
A cluster of technical levels defines the battle.
Looking at the 4-hour chart below, crude oil broke below its 100 and 200 day moving averages during Monday’s trade, along with the 50% midpoint of the move higher from the July low to the September high.
Today, buyers tried to reclaim that area. The price reached $87.56, briefly moving above the 100 day moving average, before the latest diplomatic headline helped send it back toward $87.00.
That leaves three closely grouped levels in play:
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100 day moving average at $87.47.
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200 day moving average at $87.34.
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50% midpoint at $86.93.
With the price trading within that cluster, buyers and sellers are still battling for control. The area is the near-term barometer for the next directional move.
Buyers need to hold above $87.47. Sellers need to break $86.93.
For buyers, getting above the 100 day moving average at $87.47—and staying above it—would put the price back above all three technical levels. That would strengthen the bullish bias and open the door for further upside momentum. Today’s push to $87.56 showed that buyers can get above the area. The missing ingredient is the ability to sustain the break.
Conversely, a move below the $86.93 midpoint with momentum would shift control back toward the sellers. Staying below that level would leave the full cluster overhead as resistance and bring Tuesday’s low near the natural support at $84.00 back into focus.
The risk is therefore well defined. Above $87.47, buyers have a stronger technical footing. Below $86.93, sellers have the advantage. Between those levels, the battle continues.
Meanwhile in the Middle East…
Meanwhile in the Middle East, the geopolitical risks are moving in the opposite direction. Iran’s Rezaei warned that US military bases in Europe would be targeted if American aircraft departed from those bases to strike Iran. For crude oil, that threat provides a counterweight to the optimism surrounding the Russia-Ukraine peace talks. Progress toward peace in Ukraine could help reduce oil’s risk premium, but the potential for a broader confrontation involving Iran could keep traders wary of supply disruptions. The threat alone does not change the physical supply picture, but it gives sellers another risk to consider as they try to push prices lower.
This article was written by Greg Michalowski at investinglive.com.