Oil Breaks Below Key Support – What Next?

Crude Drops on Shifting Middle East FocusCrude oil prices have fallen back below the key 82.59 level this week. The move lower appears to be in line with the prevailing market view that the Israel-Hamas conflict is remaining largely contained for now. From a trading perspective, the initial rally in oil prices was linked to the fear of a wider Middle East conflict developing which would threaten supply lines and drive-up demand in the region. However, with the fighting remaining mostly contained in and around Gaza, this initial reaction has abated for now.Bullish Oil RisksDespite the current pull-back, bullish risks remain. With the IDF still engaging Hezbollah on its Northern border with Lebanon, risks of a conflict with the Iranian state still remain high. Indeed, as the fighting continues and further atrocities occur, risks of other Middle Eastern states engaging cannot be overlooked. As such, traders should pay very close attention to news flow in the coming weeks.Fed & EIA On WatchAway from the conflict in the Middle East, a firmer USD is also putting pressure on oil prices. If the Fed maintains a hawkish outlook at the FOMC later, expect USD to undergo a fresh rally, leaning further on oil prices here. On the other hand, if the Fed dials back its hawkishness, this might fuel a USD sell off, allowing oil prices to recover somewhat. We also have the latest EIA inventories data due today which is expected to confirm a surplus of 1.5 million barrels last week, keeping oil prices pressured if seen.Technical ViewsCrudeFollowing the failed retest of the underside of the broken bull channel, crude prices have since broken back under the 82.59 level. While below this level, and with momentum studies bearish, the focus is on a further push lower with 77.64 the next support zone to watch.