By Barani Krishnan

Investing.com: After eight weeks, the nonstop rise in oil prices has ended. It has stopped.

With crude’s five-minute candle flipping at every three bars this week, the nerves of traders were getting pounded beyond belief, regardless which side they were on. 

As Friday’s 5:00 pm trading halt came, many were just glad the week was over. 

Throughout the day, the texts I got from some of them invariably sounded like this: “Heck, I’m down again!” (that’s from a long who’d been banking on the drums of war over Ukraine to deliver a new $97 high) or “Damn, just can’t win this!” (that’s a bear who thought the strands emerging from the Iranian nuclear deal evolving in Vienna would just sink crude below $88).

Brent and longs prevailed in the end. This pulled the market back from the $90 lows to mid-$93 levels. However, the global crude oil benchmark dropped 1% for the week. This snapped an eight-week winning streak. WTI also saw shorts celebrating on both ends, with the benchmark for the U.S. crude oil falling almost 1% per day and down 2% over the course of the week.

Anyone counting on this order of play to continue when markets officially reopen after Monday’s President’s Day holiday in the U.S. is probably underestimating the gravity of the volatility that oil is being set up for. 

That’s because just after the regular trading session for crude folded on Friday, the “real news” that traders had awaited all day emerged – that the White House could indeed sanction Russia by as early as next week. 

President Biden cited sanctions five times in the text of his speech that evening, reinforcing Vladimir Putin’s conviction that Russia would be penalized even if it did not add to current hostilities. Washington claimed that Moscow did not deny Russian provocation of the Donbas rebels. Next, Biden said that the Russians shelled a Ukrainian kindergarten.

If there was still a semblance of calm over the impending U.S. actions against the Kremlin, it was due to the White House’s assurance that the first sanctions package would not yet disable Russia from accessing the SWIFT international banking system. Of all the risks pegged to the crisis, this outcome would deliver the worst financial hit to Russia, theoretically making its oil as difficult to trade as Iran’s. Given the stretched state of crude supplies in the market – both real and hyped – oil’s potential ascension to $100 a barrel or even $125 should not be disputed.

Iran on the opposite side is steadily and steadily gaining access to the market legitimately for its oil exports, with every passing day.

Iran’s draft conditions or more accurately, the roadmap for return that was presented to world powers to Tehran seeks first to obtain compliance. They also need to show that Iran has reduced their nuclear enrichment levels to the point that it is no longer causing any damage to the world. Given Tehran’s earlier demands that the liftoff of sanctions on their oil not be conditional at all and that it’ll obey all rulings later, one wonders whether the draft is set up to fail from the start. 

If Iran’s top nuclear negotiator, Ali Bagheri Kani, is to be taken to his word, “nothing is agreed until everything is agreed.” Yet, it was also Kani who announced jubilantly this week that “we are closer than ever to an agreement”. His tweet sent crude oil prices down by almost $5 per barrel last week. 

Jean-Yves Le Drian, the French Foreign Minister stated to his parliament that “Political decisions from Iran are required.” Either they cause a major crisis within the next days or they agree to the accord that protects all sides’ interests. The tipping point is now. The deal is possible in a few days, not weeks. So, an agreement could still be reached under extraordinary circumstances.”

As a sweetener to reviving the 2015 nuclear deal, world powers are also waving in Iran’s face a $7 billion carrot that actually happens to be the Islamic Republic’s own money stuck in South Korean banks under the sanctions imposed by Washington. These funds will be released in return for Western prisoners being held in Iran by Robert Malley, the U.S. leading negotiator.

Iran will likely agree to the cash-for prisoners exchange. The money would help Iran meet its immediate needs. However, critics would point out that it would allow the Islamic Republic to continue to attack Israel and Western interests. Another option is for Iran to reinvest a large portion of the funds in rebuilding its oil sector. This could help Iran increase production, and make it more competitive with OPEC and extended OPEC+ to gain market share. Oil prices would fall if Iran produced more crude oil.

To recap from the past few weeks, the risks to oil from Iran’s side is the potential return of one million barrels daily or more to the market (this estimate remains contentious); the unlocking of some 12 million to 14 million barrels of Iranian crude is estimated to be held as “bonded storage” in Chinese ports; and price undercutting on mainly Saudi oil for Tehran to quickly win market share. 

As worrying as all this may be to the “higher for longer” price dream of oil bulls, a Reuters story from last week surreptitiously said that OPEC+ will work to incorporate Iran into its strategy quickly – an acknowledgment of how a hungry and competitive oil exporter with barrels to sell could upset the alliance’s strategy of squeezing production to create artificial supply shortages.

This week I mentioned that there are two extremes of oil. The first is a bear case, more barrels from Tehran eventually), and the second is a bull case (U.S. sanctions against Russian energy exports in case of invasion). It pays to look at the variations in each. 

Two divergent themes have rarely coexisted so tightly in the shaping of narratives and prices for oil over my years of analysis and reporting about it. 

Oil Prices & Technical Outlook

Brent, which is traded in London, was 0.6% higher at $93.54/barrel.  Brent lost 1% this week after seven consecutive weeks of gains, which added 27% to its global benchmark.

New York’s benchmark crude price, WTI, was down 0.8% at $91.07. WTI lost 2% over the past week following a 7-week rally which netted 31% gains to the benchmark U.S. crude oil price.

Sunil Kumar Dixit is chief technical strategist of skcharting.com. He said WTI could test $95.80, visit the much-hyped $100 and $106.80 levels within the next week, or drop to $89 below – this range is typical for markets that are being pulled from all sides after a long, two-month-long rally which appears exhausted.

“For sure, we’ve seen a break in the eight-week long winning streak. With that,  WTI has formed a potentially bearish price reversal top at $95.80 with a weekly closing at $91.80 and support at the 5-week Exponential Moving Average of $89.80 and the tested low of $89.”

Dixit added that WTI’s stochastic reading of 88/92 makes for a negative crossover while its Relative Strength Indicator reading of 67 has started pointing downward, indicating possibilities of a further correction if prices break below $89.

“Outlook for the week ahead is a tad bearish with mixed reactions between the $95.80 resistance and $89 support. For a chance to profit, bears will carefully monitor reactions to the $93.20 and $92.40 retracements. If the zone is not tested, it could prolong the correction to $84.80. Then $78 will be added over a prolonged period. But if prices consolidate above this area, oil is likely to retest 95.80 and visit much touted $100 and $106.80.”

Gold Price & Market Activity

The gold price fell on Friday. However, it closed for its third week straight with the largest weekly gain in the last three months. It was driven by geopolitical fears over Russia and Ukraine conflict, combined with soaring U.S. inflation, that drove a large number of buyers looking to secure their investments in the yellow metal.

Gold’s most active contract on New York’s Comex, , slipped $2,.20 to settle Friday’s trade down 0.1% at $1,899.80 an ounce ahead of the long weekend break leading into Monday’s market holiday for the US President’s Day.

For the week the benchmark futures contract for gold rose 3.1%. It was the most significant weekly increase since November.

On Friday it reached an intraday record of $1.905, an eight-month peak. It was June’s last gold price above $1,900.

“Gold prices have had quite a February and should find key resistance around the $1,930 level,” said Ed Moya, analyst at online trading platform OANDA.  “With Monday being a holiday in the U.S. that might hold if Ukraine tensions do not escalate further.” 

“In just a couple of months, investors have done an about-face with gold,” added Moya. “Wall Street has gone from expecting robust economic growth around 4% this year and a return to normal next year, to fears that aggressive Fed tightening could invert the curve next year and send this economy into a recession early in 2024.”

From a 3.5% decline in 2020 due to the coronavirus epidemic, the U.S. economy experienced a 5.7 percent growth in 2021. This is its highest rate of growth since 1984. 

Inflation grew faster than expected, with Consumer Price Index increasing 7.0% from December to December. This was its highest level since 1982. 

The Federal Reserve’s preferred inflation tool, the Personal Consumption Expenditures Price Index, which excludes volatile food and energy prices, expanded by 5.8% in the year to January. 

Following the outbreak in March 2020 of the coronavirus pandemic, the Fed reduced interest rates to nearly zero.  To combat inflation, the Fed is likely to increase rates this year. 

Technical Outlook for Gold

According to skcharting’s Dixit, gold appears largely on an upward momentum that could take it as high as $1,975 in the midterm.

Dixit pointed out that gold posted its third positive week following strong momentum caused by Russia-Ukraine conflicts fears. Gold broke the $1,900 barrier for a $1.902 high, then completed a $58 jump to settle at $1.897.

“Stochastics, RSI and MACD are all positioned for a bigger rally while some healthy corrections can hardly be ruled out,” said Dixit. “As for the week ahead, prices will largely be driven by geopolitical developments which may continue making gold trades choppy and volatile.”

Dixit indicated that the level of short-term support for $1,890-$1,886 was acceptable, while upside momentum may be confirmed at above $1.902, which targets $1,916-$1,920, and $1.950 -$1,975.

“The caveat though is that if gold breaks down and sustains a move below $1,890-$1,886, it will push it to $1,874 – a critical level that could trigger a further downside of $1,860 to $1,825.”

Disclaimer:Barani Krishnan doesn’t hold any positions in securities and commodities that he discusses.