Crude oil had one of the best months in the recent past until it all came falling down. This month, Brent and WTI crude rose to the highest level in almost four years. Brent reached a high of $80.45 while WTI reached a high of $72.86. The surge in crude oil came after Trump exited the Iran deal and the US opened its embassy in Jerusalem. Traders believed that these events may reduce the supply of crude oil which may lead to increased price.
This changed a few days ago when OPEC and Russia sent indications that they may ramp up production. This followed a report that the crude oil stocks were falling month after month.
The sudden decline in price of crude oil was not unexpected. First, exit of the US from the Iran deal may not in any way affect the price of crude oil. This is because recently, China has started accepting crude oil in yuan. This means that China may continue doing business with Iran. In addition, the EU has not indicated that it will follow Trump to exit the deal. As such, Europe can easily continue to buy Iran’s crude oil using euros. Finally, the US has continued to increase production, with the only problem being the lack of adequate truck drivers.
As shown below, Brent has been moving up on a narrow channel in the past three months. The price fell yesterday and reached the downward side of this channel. In the short term, there is a likelihood that a statement from OPEC could provide support. If the price crosses the lower channel, there is a possibility that it could be the start of a new downward trend.