Crude Oil Hits Fresh Highs then Contracts Ahead of Iran Decision

Crude prices have surged to fresh major-trend highs Monday, rocketed to a high of $70.84,  the loftiest level seen since November 2014. Late in the North American trading session the White House announced that the President would announce on Tuesday his decision about staying in the Iranian nuclear pact. Driving has been rising tensions between the U.S. and Iran and on May 12, the U.S. waivers on its sanctions against Iran expire, with the Trump administration seemingly disposed to pull out of the 2015 nuclear agreement and re-impose sanctions. News that U.S. oil company ConocoPhillips is in process of take over the Caribbean assets of Venezuela’s state-run PDVSA to enforce a $2 billion arbitration award has also been taken as a bullish lead by the crude market, as it will further impede Venezuela’s output capacity.

Technicals

Crude oil prices reversed course following news that Trump would make his decision on Tuesday the 8^th instead of May 12.  Prices had been on a tear breaking out, but retraced most of the gains following the White House news. Support is seen near the 10-day moving average at 68.39. Resistance is seen near the weekly highs at 70.84. Momentum has turned positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line).

President Trump is due to announce his decision on the Iran nuclear

President Trump is due to announce his decision on the Iran nuclear deal by this Saturday with the majority of observers expecting him to pull out of the deal and reimpose sanctions on Tehran. This would push oil prices higher, however, which Trump doesn’t want, if we are to judge by a recent tweet, in which the President scolded OPEC for manipulating prices higher.

At the same time, Venezuelan oil production has shrunk to 1.5 million barrels per day from twice that about 20 years ago as it lacks the financial means to maintain fields. Also, one of the companies that have sued the country for its forced nationalization of the oil industry, Conoco, last week obtained court attachment for PDVSA storage, processing, and blending facilities in the Caribbean. If Conoco assumes control over these facilities, it would further hurt Venezuela’s oil revenues.

The Dollar has Stabilized Following the Payroll Report

The U.S. jobs report disappointed on nearly every metric, and especially in the service sector. Nevertheless, internals were more positive than met the eye, and further assessment of the data showed it supports stronger growth in Q2. The hours worked numbers reflected a robust manufacturing sector and underpinned our estimate for a 3.6% GDP growth rate in Q2. Meanwhile, inflation measures are showing signs of life, though not to the point of forcing the FOMC into a more aggressive tightening path. Indeed, in its May 3 policy statement, the Fed went out of the way to stress its “symmetric” inflation goal, while policymakers have said they’re willing to overshoot on the 2% target.