Oil Sinks As Trump Claims War Is Ended
Crude Plunges On Iran Headlines
Crude prices have fallen to their lowest level since mid-April today with the futures market reversing heavily from yesterday’s highs. Optimism around a potential US/Iran peace deal is back in focus following positive comments from Trump yesterday. He told reporters that the US had ended its war with Iran and expected the deal to be done in the coming days “subject to finalisation of documents”. These comments came just hours after Trump warned that Iran would be hit very hard if a deal was not agreed. While Iran has not yet confirmed Trump’s claims, markets seem to be buying into the news with oil prices under pressure. However, we have been in this situation before with trump claiming an imminent deal only for none to materialise. As such, volatility risks remain heightened near-term.
Strong USD & Hawkish Fed Outlook
A stronger US Dollar is also putting pressure on oil here. USD has risen again this week in response to strong inflation data with both headline annualised CPI and PPI rising firmly last month. Fed rate-hike expectations have jumped accordingly with the market now pricing in a roughly 40% chance of a hike in October and a 60% chance of a hike by year end. If a deal is announced and the Strait of Hormuz is reopened, the combination of improved supply expectations and a hawkish Fed outlook could see oil prices collapsing sharply back down into the $50-$60 bracket.
Technical Views
Crude
The sell off in crude has seen the market breaking down below the triangle lows, now testing support at the 84.60 level. If we continue lower, in line with bearish momentum studies readings, 77.65 will be the next support to watch.
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