Middle East Tension Boosts Price

Market Overview

In a busy start to the week, Middle Eastern tension has ramped up as Israel has provided the US government with roughly 100,000 documents claiming to show that Iran has lied about its nuclear weapon program. Additionally, Israel appears to have launched a missile strike overnight on targets in Syria that were occupied by Iranian forces. While the idea that Iran is secretly continuing its nuclear weapon pursuit is nothing new, the documents released by Israel increase the likelihood that the US will withdraw from the Iran deal.

WTI futures responded quickly to the events and rallied hard into resistance just under $69.50. Front month volatility spiked to 29% with market participants expecting a move of +/- $3.50 over the next 17 days. Implied volatility for products has been subdued today with a current expected move of +/- $0.10 for both ULSD and RBOB prompt month futures over the next 25 days.

The economic calendar this week is loaded with key indicator data including headline figures for the labor market, GDP and central bank rate decisions. Coupling this with the events in the Middle East leaves us vulnerable to a volatile week across the energy complex.

Technical Analysis

WTI Futures

Given the current fundamental environment and recent technical break of resistance at $66, WTI looks set for another week of gains. Geopolitical momentum will be crucial in the upcoming sessions and any lulls in the action could see us pullback and test $66. The bullish trendline is still a valid technical level and should provide support should the $66 level fail to hold.

ULSD Futures

ULSD is still hugging trendline resistance and is having a bit of difficulty clearing $2.15. The lower trendline and horizontal support at $2.04 are still valid technical levels that should support price if sellers decide to take us lower. The technical bias is higher for the week, but we expect a pullback if fundamentals fail to materialize.

RBOB Futures

June RBOB has successfully cleared resistance at $2.09 following a retest after the initial break. As with ULSD, if the fundamental environment remains favorable traders will look to buy on any weakness at key support levels. Intersections of trendline and horizontal support offer greater psychological importance than the individual components.

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