WTI Oil Slides After Surge on Supply Disruption Concerns—Key Level To Watch

Leading U.S. oil benchmark West Texas Intermediate (WTI) traded 0.8% lower at $84.99 early Monday morning as investors reduced their elevated risk assessment on the commodity after Iran’s attack against Israel Saturday caused limited damage.

The mass drone and missile attack, which Iran said was in response to an April 1 Israeli strike, was largely repelled by Israeli and allied forces, somewhat easing fears of an immediate escalation into a broader conflict that could disrupt the commodity’s supply, production, and transportation throughout the Middle East. However, oil markets could remain volatile this week as investors brace for the possibility of an Israeli counter-offensive against Iran over the attack.

“An attack was largely priced in the days leading up to it. Also the limited damage and the fact that there was no loss of life means that maybe Israel’s response will be more measured,” ING commodities strategist Warren Patterson reportedly said. “But clearly, there is still plenty of uncertainty and it all depends on how Israel now responds.”

Analysts at Goldman Sachs (GS) said “the potential Israeli response to Iran’s attack is highly uncertain and will likely determine the extent of threat to regional oil supply.” Near-term risks include the possibility of added oil sanctions on Iran, Israeli air strikes on the country’s energy infrastructure, or Iran blocking the vital Strait of Hormuz shipping channel.

Since bottoming out just below $70, the WTI price has continued trending upwards, with the 50-day moving average recently crossing above the 200-day moving average to generate a golden cross buy signal. If the commodity continues climbing, monitor the $92.50 level, an area on the chart where it may run into resistance from a horizontal trendline that connects a range of price action over the past 20 months.

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As of the date this article was written, the author does not own any of the above securities.