Oil prices rose sharply as geopolitical tensions rose unexpectedly in the Middle East. At the start of a new year, stock markets turned into a risk aversion mode after a strong rally in December, as geopolitical concerns reemerged after a US airstrike killed the Iranian military leader Qasem Soleimani and Iran has vowed to retaliate. 

Against this backdrop, worries about oil supplies drove the futures higher, with Brent extending gains on Monday. The prices rose above the $70 handle for the first time since May 2019 and registered fresh highs at $70.70. After a spike at the start of the trading day, Brent has retreated by 100 points and holds marginally below the psychological level. Still, the futures remain elevated following five weeks of gains in a row. 

At this stage, oil is starting to show signs of extremely overbought conditions. But considering the escalation of tensions between the United States and Iran, the market has further upside potential, at least in the short term. Besides, other fundamentals point to the prevailing upbeat sentiment in the market, including the improving economic conditions in major countries.

In the near term, traders will continue to follow further developments on the US-Iran front, with further signs of rising tensions could drive Brent crude to fresh highs once the futures make a decisive break above the $70 handle any time soon. In case of profit taking, the prices may meet support around $69 and then at $68.60. 

In the days to come, traders will also monitor fresh industry data out of the United States. Positive updates from the API and EIA could serve as the additional bullish driver for Brent if the data point to a decline in crude oil inventories. 

It looks like that bullish risks continue to prevail in the oil market, given the latest news from the geopolitical front. In particular, Trump said yesterday that the United States will hit over 50 Iranian sites if Tehran attacks the US assets. As such, Brent futures may easily regain the $70 barrier amid any signs of rising tensions.


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