Commodities outlook: Oil price at significant level

As always, there is plenty going on in oil and copper markets. Here are the drivers to watch closely.

It's been another interesting week in the commodities markets and oil, especially, has been choppy. 

The main West Texas Intermediate (WTI) futures contract has broken out of the trendline on the charts to the upside, after the latest American Petroleum Institute (API) data showed a much larger than expected drawdown of 8.129 million barrels.  Analysts had pencilled in just 3,100 million barrels. 

This smashed the previous week's draw of 5 million barrels which had also led the market to rally late Tuesday evening. But that wasn't the only piece of good news; inventory levels in the Cushing area also fell by 754,000 barrels, which was the main difference from the last reading. 

Last week, WTI futures suffered a mini sell-off from about $60.28 per barrel to find support at $56.04, but there's plenty to watch here. 

• There's a way to invest in gold via this ii Super 60 recommended fund

Now the OPEC chatter is out of the way, it seems like the Iran issue has come back to the forefront of investors' minds. 

Iran appears to have breached the limit of enriched uranium they are allowed to hold, according to the International Atomic Energy Agency (IAEA). Its inspectors had verified the 300kg cap had been exceeded, which threatens to escalate tensions between the US and Iran. 

Analysts are keeping a keen eye on any comment from Donald Trump on Iran and any military activity in the Strait of Hurmuz. Aggressive rhetoric from either side will surely push the oil price higher. 

As always today, Wednesday sees the Department of Energy release its supplies report, so confirmation of falling inventories in the US could be a positive short-term catalyst.

Oil chart breakout imminent?

On the technical front, there are two key levels in play this week and the most important one is resistance at $59.63. Hitting or breaking above this figure would mean a clear break of the trendline and potentially another push above the $60 per barrel mark. 

Just today, the Iraqi oil minister has said that $70 per barrel in the Brent crude contract is acceptable. Brent is currently at $65.28 per barrel and trading at a slight premium. 

Source: TradingView Past performance is not a guide to future performance

Copper traders express doubts

Since the disappointing trade talks at the G20 summit in Japan, copper has had a tough time. Markets have taken the event as a can-kicking exercise, and copper traders have sold the commodity down to a low of $2.61 per pound this week. 

Interestingly, London Metal Exchange (LME) inventory levels fell, but low Chinese demand is dominating the markets. 

Today, amid reports that a "constructive" phone call between the US and China has taken place, copper markets are 1.35% higher. Analysts are taking these headlines with a pinch of salt, however, as they have heard it all before in the past few months. 

Below the trendline support that stretches back to 2016, the key support level for copper traders still stands at the consolidation base of $2.54 per pound. If this is breached, we’ll know base metal traders and investors have lost confidence in the talks, and that lower levels are on the horizon.

However, a break of resistance at $2.74 per pound could indicate some merit to the reports and a sense of hope. That said, it doesn't feel like we will get a resolution any time soon.

Source: TradingView Past performance is not a guide to future performance

Rajan Dhall is a freelance contributor and not a direct employee of interactive investor.