Brent crude oil price on edge as inventories dip ahead of US driving season

Brent crude oil price was in a tight range today, May 14, as investors focused on the upcoming meeting between Donald Trump and Xi Jinping in Beijing. It was trading at $105.75, where it has remained in the past few days. 

Oil prices will also be in the spotlight as global inventories plunge at the fastest pace in years ahead of the US driving season. 

Will Xi Jinping help Trump solve the Iranian crisis

Brent and the West Texas Intermediate (WTI) have remained in a narrow range in the past two days as investors focus on the upcoming Trump and Xi meeting in Beijing. 

Trump is hoping that Xi will help him convince Iran to reach a deal with the United States. Besides, China and Iran have a long relationship, with the former being the biggest buyer of Iranian oil.

However, despite the pomp and color in China, analysts caution that China will not be interested in helping the US. For one, it wants the US, its main military rival to use as much weapons as possible as it prepares to venture into Taiwan in the next few years. 

The meeting comes two days after Trump warned that Iran’s response to US proposal was unsatisfactory. He also said that the ongoing ceasefire was on life support and threatened to restart bombing of the country.

A restart of the war would have severe implications in the energy market. For one, the US would likely target Kharg Island, which handles over 90% of Iran’s oil exports. 

Iran, on the other hand, would target oil infrastructure in the region, including in Saudi Arabia, Qatar, Kuwait, and in the United Arab Emirates (UAE). Specifically, it would focus on a crucial oil pipeline that Saudi Arabia is using to export millions of barrels oil per day. 

Iran would also focus on closing the Red Sea, where 12% of all of the world’s oil passes through. As a result, the implications in the oil market would be severe, with analysts predicting that Brent may surge to $150 and beyond. 

At the same time, the media has reported that Iran’s military capability remains intact, meaning that it has the capacity to accelerate the bombing. 

Falling inventories are a major concern ahead of US driving season

Meanwhile, Brent crude oil price is wavering as investors focus on the plunging oil inventories in the United States and other countries. A report released on Wednesday showed that US crude oil inventories dropped by 4.3 million barrels to 452.9 million barrels. 

Gasoline inventories also fell by 4.1 million barrels to 215 million. This is important as it is happening ahead of the driving season, which starts after the Memorial Day weekend. In a note, a UBS analyst said:

“Another EIA report showing a ​tightening of the ⁠oil market, with total oil inventories falling by nearly 14 million barrels. Meanwhile, U.S. gasoline inventories will start from a low level in the upcoming U.S. driving season.”

At the same time, the war has led to a sharp decline in oil production, with OPEC’s falling by 1.7 million barrels. It has dropped by 30% since the war started in April. 

Brent crude oil price technical analysis

Crude oil price chart | Source: TradingView

The daily chart reveals that the price of Brent crude oil has remained on edge in the past few days. It rose from a low of $96 last week to the current $105. 

A closer look shows that the price has remained steady above the 50-day and 100-day moving averages. It has also formed an inverted head-and-shoulders pattern, a common bullish reversal sign in technical analysis.

Therefore, the most likely scenario is where the price rebounds, possibly to the neckline at $115. This view will depend on how the Iran war evolves. If Trump restarts the war, it will likely continue soaring. On the other hand, if he capitulates, chances are that prices will resume the downtrend, possibly to $80. 

The post Brent crude oil price on edge as inventories dip ahead of US driving season appeared first on Invezz