Crude oil prices extended a spectacular rally yesterday and touched early February highs around $69.50. But the major psychological resistance of $70 has scared the bulls, and Brent faded its earlier spike on Thursday, trading almost 1.5% lower on the day.
The bullish move was recently fuelled by rising geopolitical tensions around Iran, increasing the risk of reduction in oil export from one of the largest OPEC producers. Against this background, traders started to eagerly price in a faster global market rebalancing after the expected introduction of new US sanctions against Tehran. The US inventory data gave the additional impetus to prices as the EIA reported a decline in crude oil inventories of 2.6 million barrels for the week to March 16.
However, the rally was to aggressive and made Brent a bit overbought in the short-term charts. Besides, prices have reached very attractive levels for profit taking. So, the market participants decided to use this opportunity, which has triggered a downside correction. The barrel is now approaching the $68 mark, and to prevent a more aggressive retreat, the asset needs to keep above this area for now. The immediate risk for prices is the potential fresh wave of risk aversion on Trump’s announcement of new import tariffs against China.