Crude oil has been under pressure but we do have a strike on Israel from Yemen and a retaliatory strike on Yemen from Israel and the Houthis have vowed a major retaliation will this support crude prices? We think it could logic of our view below...

In terms of the market's view of crude oil: “Oil slipped on Friday and was set for its second straight weekly loss, as a strong dollar and concern over the economy of top oil importer China offset a tighter supply outlook.” (REUTERS) and  "WTI crude futures hovered near $79 per barrel on Monday, remaining close to its lowest level since mid-June and following an over 3% drop in the previous session, weighed down by renewed optimism for a ceasefire in Gaza. Last week, US Secretary of State Antony Blinken suggested that a long-awaited truce between Israel and Hamas was close at hand. This, combined with a stronger dollar, a broad selloff in risk assets, and concerns about China's economic outlook, added pressure to oil prices." (TRADING ECONOMICS) 

We don't see a cease-fire coming in Gaza and traders are largely ignoring the possibility of a supply shock in the Middle East, after the attack on Isreal by the Houthis and the counter-strike by Israel - Also supply is tight relative to demand

Geo-Political Tensions Israel and Yemen 

As we get an escalation of tensions between Israel and Yemen we think buying crude oil at current levels above support looks attractive from a risk-to-reward point of view – because escalation in the conflict in the Middle East could send crude significantly higher to $100.00 a barrel or more.

Israel confirmed on Sunday its military forces launched an airstrike on the Hodeida Port, a major Yemeni port on the Red Sea and also the second largest in the country. In response to the port attack, Houthi spokesperson Mohammed Abdulsalam told Qatar's Al Jazeera TV, that there will be "no red lines" in the next attack on Israel. "All sensitive institutions with all its levels will be a target for us," Abdulsalam told Al Jazeera. In addition, Houthi military spokesperson Yahya Saree said the "response to the Israeli aggression against our country is inevitably coming and will be huge."

Before the attacks “Bloomberg says Israel will need at least seven more months to defeat Hamas. This suggests the fight could expand outside of Gaza to either Lebanon or Iran. If that's the case, expect continued bombardment of ships in critical maritime chokepoints by Houthi rebels - with increasing risks of an oil supply shock that could send crude over $100/bbl.” ( ZEROHEDGE)

It will be very hard for Israel to beat the Houthis - Saudi Arabia with Western backing tried for several years and failed. We have also seen the US and allies attack Yemen recently with airstrikes and forces are deployed to help stop attacks on shipping in the area which have failed to deter the Houthis who have continued their attacks.

The Houthis are well armed and well motivated and can disrupt major supply routes in the Middle East which they are already doing and also target and disrupt global oil supply.

In addition, recent note by David Asher, a senior fellow at the Hudson Institute and former State Department official in the Trump administration, warned that the next global financial shock could come from the Middle East. Asher noted that Yemen's Houthis military could target high-value oil facilities in Saudi Arabia.

In the same document, it's noted that Iran is preparing for an "oil war"

Of course, we hope that there won't be escalation but it looks highly likely and with tight crude supply, we would expect some upside to correct oversold but if the conflict continues to escalate in the Middle East we could see crude quickly move up to $100.00 a barrel or more. We have skewed risk to reward - low downside and plenty of upside potential in our view

Technical Analysis

Our view of the key technical levels of support and resistance to look out for are on the charts below.