Middle East Impact

Oil prices remain under pressure on Friday and are on course for their largest weekly decline in 3 months. Hopes of a ceasefire between Israel and Hamas are driving the selling in oil prices, with crude futures now down around 10% from the YTD highs. Additionally, risks of a fresh uptick in USD if we see continued strength in today’s US jobs report  are also weighing on crude sentiment. The ADP employment figure earlier in the week was seen coming in above expectations, highlighting bullish USD risks into today’s report.

OPEC+ Expectations

Speculation regarding a potential ceasefire between Israel and Hamas has been a key driver of the sell off in oil prices in recent weeks. Given this reaction we can expect selling to intensify if a ceasefire is confirmed, reducing supply risks in the region near-term. If we do see a fresh drop lower in oil prices, however, there is some expectation that OPEC+ is likely to increase or extend its supply restrictions in a bid to help bolster prices. Indeed, in a note issued this week, JPMorgan said that it expects OPEC+ to extend current supply curbs beyond Q2 in response to a large counter-seasonal build in inventories.

NFP Next

Looking ahead today, USD will be on watch for oil traders. The latest set of US labour market data due this afternoon holds the potential to drive a directional move in USD. If we see a move higher, this will no doubt exacerbate the downside in crude near-term. On the other hand, if we see USD come off in response to a downside surprise this might help crude stabilise somewhat.

Technical Views

Crude

The sell off in crude has seen the market reversing lower within the bull channel, breaking beneath 82.59. Price is now testing the channel lows, with structural support just below at 77.64. If we see a break below here, focus turns to 72.61 next, in line with bearish momentum studies readings.