Oil Falls From One-Month High as Technical Gauges Flash Weakness

(Bloomberg) — Oil retreated from its highest close in almost a month, with price support from attacks on the Red Sea faltering as key technical gauges flash weakness amid thin holiday trading.

Most Read from Bloomberg

West Texas Intermediate was near $75 a barrel after rising 2.7% on Tuesday, when it closed at the strongest level since November. Traders are focused on evening out positions before the new year, and low volumes are leaving prices susceptible to swings.

Both WTI and Brent crude are in the midst of a “death cross” — a bearish technical signal where the 50-day moving average crosses below the 200-day. It’s the first such move since September 2022.

Read More: India’s Modi Talks to Saudi Crown Prince After Oil Vessel Attack

At the same time, timespreads — a critical barometer for supply and demand — have strengthened in recent sessions, with the gap between WTI’s nearest two contracts at 14 cents a barrel in contango compared with 23 cents a week ago. But some analysts credit this shift to timespread traders covering their shorts as prices climb higher, rather than perceived near-term supply strength.

Furthermore, the risk to supply posed by Red Sea attacks by the Yemen-based Houthi militants hasn’t abated even as incidents slow, with shipping giant Hapag-Lloyd AG saying it will avoid the Red Sea despite the launch of a US-led taskforce to protect the key trade route. The latest US strikes on targets in Iraq are further signs that the Israel-Hamas war risks expanding into a wider conflict.

Oil still remains on course for its first annual decline since 2020. There are widespread concerns about a glut next year despite fresh supply curbs from the Organization of Petroleum Exporting Countries and its allies.

Story continues

“As we approach the year end, more of the trade will focus on re-aligning positions on thin trading volume unless of course we see further attacks in the Red Sea area,” said Dennis Kissler, senior vice president for trading at BOK Financial Securities, in a note to clients.

To get Bloomberg’s Energy Daily newsletter into your inbox, click here.

Most Read from Bloomberg Businessweek

©2023 Bloomberg L.P.