Oil markets brace for Trump’s decision on Iran – Commodity News
May 8, 2018 10:26 am
US President Trump will announce today at 1800 GMT whether the US will withdraw from the Iran nuclear deal. Oil prices have been surging in recent weeks, on speculation that Iran may soon be faced with fresh sanctions on its exports, which would likely lead to lower oil supply. While an official withdrawal by the US today could push prices even higher, its crucial to note that most of this story may be priced in already, which also leaves prices vulnerable to a “sell the news” reaction.
The US President indicated yesterday that he will announce today at 1800 GMT his decision on whether the US will pull out of the Iran nuclear deal of 2015. Under this deal, Iran agreed to limit its nuclear research in exchange for the easing of sanctions on its economy. President Trump has repeatedly criticized this accord as being the “worst deal ever” and despite repeated calls from European allies to stay in, he has been quite vocal about the US leaving the agreement, something that would probably entail re-imposing sanctions on Iran’s exports. With Iran being one of the world’s largest oil producers, such sanctions would essentially remove a sizeable portion of crude supply from the market.
Expectations for such an outcome have been pushing oil prices higher and higher in recent weeks, with both WTI and Brent reaching fresh highs last seen in late 2014. What is most impressive, is that prices have rallied even in an environment where the US dollar was rising as well. Typically, an appreciating US currency exerts downward pressure on oil prices. The fact that both have been rising together lately shows that demand for oil has been strong enough to offset this negative pressure exerted by the rising dollar.
Should the US indeed leave the deal today, then prices could spike higher on the decision amid expectations for reduced supply. That said though, one must also sound a note of caution, as oil has already rallied very substantially heading into this event. This suggests that most of the “sanctions” story is already priced into the oil market, and that risks surrounding prices may now be asymmetrical.
While an official confirmation of new sanctions could push prices a little higher from current levels, anything other than that could come as a surprise and hence, trigger a much sharper negative reaction in prices. For instance, if the US finally decides to give Iran another chance, or if the sanctions are watered down and are smaller than previously, or if the European nations in the pact don’t show willingness to reimpose similar sanctions, then it wouldn’t be a surprise to see a notable “sell the fact” reaction in oil, since investors already “bought the rumor”.
Technically, looking at WTI, advances in prices could encounter immediate resistance near the $70.85 handle, which is the peak from May 7 and a three-and-a-half year high. An upside break of that hurdle could bring the low of 14 November 2014 in focus, at $73.30. Further up, sell orders may be found near the round figure of $75.00.
On the downside, and in case of a disappointment for oil bulls today, declines in WTI could find support initially near $66.80, which is the low from May 1, with the area around it also encapsulating two peaks from the recent past. A downside break of that zone could open the way for the crossroads of the uptrend line drawn from the low of August 31 and the $64.30 barrier, defined by the top of February 26. Even lower, declines in prices could stall near $61.70, the trough of April 6.
US President Trump will announce today at 1800 GMT whether the US will withdraw from the Iran nuclear deal. Oil prices have been surging in recent weeks, on speculation that Iran may soon be faced with fresh sanctions on its exports, which would likely lead to lower oil supply. While an official withdrawal by the US today could push prices even higher, its crucial to note that most of this story may be priced in already, which also leaves prices vulnerable to a “sell the news” reaction.
The US President indicated yesterday that he will announce today at 1800 GMT his decision on whether the US will pull out of the Iran nuclear deal of 2015. Under this deal, Iran agreed to limit its nuclear research in exchange for the easing of sanctions on its economy. President Trump has repeatedly criticized this accord as being the “worst deal ever” and despite repeated calls from European allies to stay in, he has been quite vocal about the US leaving the agreement, something that would probably entail re-imposing sanctions on Iran’s exports. With Iran being one of the world’s largest oil producers, such sanctions would essentially remove a sizeable portion of crude supply from the market.
Expectations for such an outcome have been pushing oil prices higher and higher in recent weeks, with both WTI and Brent reaching fresh highs last seen in late 2014. What is most impressive, is that prices have rallied even in an environment where the US dollar was rising as well. Typically, an appreciating US currency exerts downward pressure on oil prices. The fact that both have been rising together lately shows that demand for oil has been strong enough to offset this negative pressure exerted by the rising dollar.
Should the US indeed leave the deal today, then prices could spike higher on the decision amid expectations for reduced supply. That said though, one must also sound a note of caution, as oil has already rallied very substantially heading into this event. This suggests that most of the “sanctions” story is already priced into the oil market, and that risks surrounding prices may now be asymmetrical.
While an official confirmation of new sanctions could push prices a little higher from current levels, anything other than that could come as a surprise and hence, trigger a much sharper negative reaction in prices. For instance, if the US finally decides to give Iran another chance, or if the sanctions are watered down and are smaller than previously, or if the European nations in the pact don’t show willingness to reimpose similar sanctions, then it wouldn’t be a surprise to see a notable “sell the fact” reaction in oil, since investors already “bought the rumor”.
Technically, looking at WTI, advances in prices could encounter immediate resistance near the $70.85 handle, which is the peak from May 7 and a three-and-a-half year high. An upside break of that hurdle could bring the low of 14 November 2014 in focus, at $73.30. Further up, sell orders may be found near the round figure of $75.00.
On the downside, and in case of a disappointment for oil bulls today, declines in WTI could find support initially near $66.80, which is the low from May 1, with the area around it also encapsulating two peaks from the recent past. A downside break of that zone could open the way for the crossroads of the uptrend line drawn from the low of August 31 and the $64.30 barrier, defined by the top of February 26. Even lower, declines in prices could stall near $61.70, the trough of April 6.
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