Oil at the threshold of green territory ahead of Fed’s Jackson Hole

For this Monday’s trading session, the oil price is on the verge of turning a negative performance into a positive one. Early Thursday, prices fell as traders turned their attention to concerns about Chinese demand and the negotiations for a cease-fire in Gaza. Hedge funds that are long the Japanese Yen see additional relaxation in the US Dollar Index as the currency gains value relative to the US dollar.

Prior to the US trading session, oil turns flat, but the risk factors that caused prices to drop on Monday are not going away very quickly. The general mood of the market is affected by traders’ fear of a potential decline in demand from China, a major oil importer. All eyes are on the Middle East in the meantime, as Reuters reports that a favorable conclusion to the ceasefire negotiations in Gaza could significantly lower supply risks. Given that two significant risk premium occurrences have been priced in, further softening of Crude prices may be imminent.

The US Dollar Index (DXY), which tracks the performance of the US Dollar against six major currencies, is feeling the heat from the Japanese Yen. Markets got rattled on Friday after the Commodity Futures Trading Commission (CFTC) reported that hedge funds were back to being net long on the Japanese Yen (JPY) for the first time since 2021. This weighed on the Greenback and spilled over into the DXY’s performance, which flirts with a break below 102 ahead of the Federal Reserve’s Jackson Hole Symposium later this week. At the time of writing, Crude Oil (WTI) trades at $75.37 and Brent Crude at $78.93

US Secretary of State Antony Blinken has joined up with the Prime Minister of Israel Benjamin Netanyahu on Monday. Bloomberg reports that Netanyahu said the meeting was positive and Israel is commited to follow the US proposal that is currently on the table.

Bloomberg reports that Iran has jacked up the premium on its light crude prices by $2.35 per barrel over the benchmark Oman-Dubai pricing for September sales to Asia. The move is rather strange taking into account that markets are concerned about a slowdown from China.
The weekly Commodity Futures Trading Commission (CFTC) data revealed that hedge funds are still net long on Crude Oil even though price action has not been outperforming these past few weeks. Bloomberg reports that hedge funds might be compelled to cut their stake if crude does not gain ground this week, adding to more selling pressure.

Oil output in Libya has increased by 300,000 barrels per day with the Waha Oil production back to normal levels after maintenance, Reuters reports. Headline risk is to be considered with ceasefire talks on Gaza taking place in the coming days.

Oil prices have been unable to cross the 100-day Simple Moving Average (SMA) around $78.45, causing a technical warning on charts. The Relative Strength Index (RSI) is still in the middle of its range, which could lead to further downside, especially when hedge funds cut their stake, triggering a further slide towards $72.00 or lower. On the upside, it becomes difficult to be bullish with numerous resistance levels nearby.

The pivotal level at $75.27 is the first to be watched, followed by the double level at $77.65, which aligns with a descending trendline and the 200-day SMA. If bulls break above it, the 100-day SMA at $78.45 could trigger another rejection. On the downside, the low from August 5 at $71.17 is the best level for a bounce, and levels below $70.00 may be considered in case ceasefire talks and hedge funds sell their speculative stake in Oil contracts.