Oil Prices Face Heightened Volatility After Weekend Drone Strike—Key Price Levels to Watch

WTI Crude Oil

Oil prices remain in focus Monday after an Iran-backed drone strike killed three U.S. service members in northern Jordan, adding to supply disruption concerns. West Texas Intermediate (WTI) crude—one of the main three benchmarks in oil pricing—opened the week higher but pared earlier gains, potentially setting the stage for heightened volatility in energy markets as tensions in the region escalate.

Following the attacks, President Joe Biden said that the United States will hold those responsible to account. RBC Capital said in a research note cited by Reuters that the deaths represent “a critical inflection point in the ongoing conflict in the Middle East and raises a specter of a more substantial U.S. involvement in the war.” The bank added that heightened tensions between Washington and Tehran threatened to cause further regional supply disruptions.

The weekend drone strike came after Yemen Houthi rebels launched missiles at a fuel tanker on Friday that sparked an onboard fire. Up until this point, attacks by Houthi militants have primarily targeted container vessels transiting the Red Sea. Strikes on Friday and over the weekend raised worries that rebels could intensify attacks on oil tankers in coming weeks, further disrupting global energy supplies.

Oil prices also remain well supported on the demand side after a better-than-expected reading on U.S. economic growth last week and expectations of Chinese stimulus to curb a slowdown in the world’s largest oil importing nation.

Despite the 50-day moving average crossing below the 200-day moving average in late December to generate an ominous death cross sell signal, the WTI oil price broke out from a descending channel earlier this month and now trades above both indicators. Moreover, a three white soldiers pattern has formed on the chart over the past week, indicating a potential upside reversal. If oil prices continue to advance, the $83 level may find overhead resistance from the prominent April and August swing highs. On the downside, the 50-day moving average could be a possible line of support.

WTI was down 0.5%, trading at $77.59, at around 9:15 a.m. ET Monday.

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