Crude Oil Double Top: How Low Can It Go?

WTI crude has shed around $14 a barrel in just over a week, and the chart now shows a textbook double top sitting right on its neckline.

Hopes that the US midterm results will hurry along an end to the Iran war drove the selloff, leaving US crude with a weekly loss of nearly 13% on Friday. President Trump's comments on Sunday that fresh strikes on Iran are "highly unlikely" kept the pressure on into Monday, even as attacks on shipping around the Strait of Hormuz continued.

Latest Market Moves

• WTI crude had been trading just under $90 a barrel in early Monday trade, down around 1.4% on the day and roughly 14% below the 30 October close of $104.12.

• Brent slipped around 1.8% to near $96.60, after posting its steepest weekly fall since the start of the pandemic in 2020.

• RBOB gasoline futures dropped around 12% last week and were off another 1% on Monday, near $2.75 a gallon.

• The Energy Select Sector SPDR ETF (XLE) fell around 12% last week to close at $61.62.

• European stocks were firmer as lower energy costs lifted sentiment, with the Stoxx 600 up around 0.8% and the FTSE 100 up around 0.7% heading into Monday afternoon.

Peace Talk Started the Slide

The selling began before a single midterm vote was counted.

WTI fell as much as 8.6% to $95.15 on Monday 2 November before closing down 7.4% at $96.46, as Qatari mediators headed to Tehran. Iranian President Masoud Pezeshkian said his government "will try to resolve the problem with dialogue," while Trump said a deal "could happen."

That came straight after a rally to a late-October peak, when fears of escalation had pushed WTI to an intraday high of $104.99 on 30 October.

Midterms Rewrite the Iran Trade

The bigger blow landed the day after the election.

Democrats swept Tuesday's midterms, a result the market read as raising pressure on the White House to wind the war down sooner. On Wednesday, WTI fell as much as 9.3% to $87.13 before closing down 8.3% at $88.12, its lowest close since late August.

Fuel prices were a big part of the backdrop, with US regular gasoline averaging around $4.07 a gallon on Friday according to AAA. That is a level voters notice, and one the administration now has more reason to bring down.

Trump Cools the War Talk

Sunday's comments from Trump gave the market another reason to strip out risk premium.

Asked on CNN whether new strikes on Iran would be needed, Trump said: "It depends on whether or not they sign a very strong agreement." He added: "The answer is, highly unlikely it's going to be necessary."

Trump had hinted at renewed attacks after the midterms, but no large-scale US operation has followed. Iran has reportedly sent a nuclear proposal to Washington through Qatar, although no comprehensive deal has been reached.

Supply Risks Cut Both Ways

The risk premium has shrunk, but it hasn't gone.

Both Washington and Tehran reported shipping hit in or near the Strait of Hormuz over the weekend, and Iran's Revolutionary Guards said three tankers were on fire on Sunday. The Iran-aligned Houthis also claimed an attack on Saudi Aramco's offices in Riyadh, which caused no casualties.

Refined products are still tight, with US diesel stockpiles at their lowest since 2003 and diesel pump prices within 5% of September's record. On the other side, OPEC+ held its December output targets steady after completing the return of 1.65 million barrels per day of earlier cuts in September, so more barrels are already flowing.

WTI Technical View: Double Top Sits on the Neckline

The 8-hour chart shows a classic double top, with peaks in mid-September and late October.

Both highs formed in the $102.50-104.30 area, and the RSI made a lower high at the second peak, a bearish divergence that warned momentum was fading. Last week's slide also broke the rising trendline from the early-July low near $67.

The neckline sits at $86.60-87.00, where the early-October low held and where Thursday's drop to $86.65 found buyers. A close below there would confirm the pattern, with the measured move (the height of the top projected down from the neckline) pointing to around $69-70, close to July's low near $67.

On the upside, the broken trendline near $93-94 is the first hurdle, and a recovery back above it would weaken the bearish case.

Source: SpreadEx | WTI Crude Oil, 8hr Chart