Oil News: Iran Talks Cap Upside as Crude Oil Futures Hold on Inventory Support

U.S.-Iran Talks Resume, Oil Pulls Back from Highs

WTI crude oil futures are under pressure on Thursday as the on-again, off-again chats between the U.S. and Iran, are reportedly back on. Reuters is saying that the two powerhouses have agreed to hold talks in Oman on Friday. The news triggered some light profit-taking after yesterday’s price surge, but not enough to drive out all the buyers hedging against a supply disruption.

At 13:30 GMT, March WTI Crude Oil Futures are trading $63.82, down $1.32 or -2.03%.

Choppy Week Mirrors On-Again, Off-Again Diplomacy

It’s been a choppy week so far with prices plunging on Monday after President Trump said over the weekend that Washington and Tehran were talking. Oil prices jumped on Wednesday after a media report suggested that talks could collapse. This came on the heels of tensions in the Strait of Hormuz, where the U.S. Navy shot down an Iranian drone.

Strike Risk Still Looms Despite Negotiations

Despite the talks, Reuters is reporting that there are still concerns Trump will follow-through on his threats to strike Iran, potentially leading to a much larger confrontation in the region.

Strait of Hormuz Closure Could Add $10-$20 to Prices

An attack on Iran would likely spread through the region with the OPEC member likely shutting down the Strait of Hormuz and jamming oil vessels from other OPEC countries from leaving the area. About 20% of the world’s total oil consumption passes through the waterway. OPEC members Saudi Arabia, the United Arab Emirates, Kuwait and Iraq would be impacted, possibly driving oil prices $10 to $20 higher.

EIA Data Shows Larger-Than-Expected Inventory Draw

While news of the talks is helping to reduce the risk premium, the market is being supported by Energy Information Administration (EIA) data which showed a bigger than expected decline in crude oil inventories. The EIA report showed a drop in crude stocks and distillates, while gasoline inventories rose in the week-ended January 30.

Technical Picture Shows Uptrend Intact

Technically, the main trend is up according to the daily swing chart. A trade through $66.49 will reaffirm the uptrend. The main trend changes to down on a move through $58.53. The price swings have also created at support zone at $60.66 to $59.29.

A minor swing at $66.48 to $61.12 has formed a pivot at $63.80, which is currently being tested.

Trendline Support Rising at $0.36 Per Day

Trend line support is at $62.85. This indicator from the $55.65 bottom has been guiding the market higher since January 7 and is moving up a rate of $0.36 per day.

WTI crude oil is also being supported by the 50-day moving average at $60.69 and the 200-day moving average at $59.12.

Outlook: Capped at $66.49 While Talks Continue

Gains are likely to remain capped at $66.49 as long as the U.S. and Iran talks continue. If the talks continue beyond Friday then prices could weaken further. Taking out the trendline at $62.85 could trigger an acceleration into the support cluster at $60.69 to $60.66.

More Information in our Economic Calendar.