Oil News: WTI Crude Holds Range as Inventory Risks and Iran Headlines Shape Oil Outlook

Crude Oil Grinds Higher Amid Iran Talk Uncertainty

West Texas Intermediate (WTI) crude oil futures edged higher on Friday, while continuing to grind inside a tight trading range. The move reflects a nervous market with strong risk premium support even as the United States and Iran hold talks.

On Friday, March WTI Crude Oil is trading $63.55, up $0.26 or +0.41%.

On the surface, the fact that they are talking may be limiting the upside. However, the risk premium remains intact because failed talks could increase the chances of a military conflict between the two countries.

“We keep going back and forth on this Iran situation,” said John Kilduff, partner at Again Capital. “It’s better one day or even one hour then worse the next. It’s status quo nervousness over Iran.”

The Iran Talks: What’s Actually Happening

According to Reuters, Iran’s chief diplomat on Friday said that the nuclear talks with the U.S. under the watchful eye of Omani mediators, were off to a “good start” and set to continue.

This represents the good news capping gains because it reduces the immediate risk of a U.S. military strike on Iranian nuclear facilities, Iranian retaliation and a region conflict that disrupts Middle East oil supply.

Why the Market Isn’t Buying the Good News

Friday’s meeting results were enough to stall the rally and curtail the need for more risk premium, but not enough to eliminate it completely. Friday’s rally indicates the market isn’t quite fully buying the “good news” bit yet. This is because traders know that talks can collapse quickly. One bad headline puts the situation back to elevated conflict risk.

Traders also know that if the situation is resolved quickly, crude oil will be vulnerable to the downside. Perhaps $5 to $15 could be tied to the risk premium. Sanctions on Iranian oil could be reduced, putting 1-2 million barrels/day back on the market. And it reduces concerns that the Strait of Hormuz could be blocked. This waterway is responsible for 20% of global oil flows.

The Trading Outlook: Range-Bound Until Clarity Emerges

From a trader’s standpoint, this could mean that crude oil will stay range-bound until there is concrete progress, something like deal framework or the talks break down. Both bulls and bears have a case, but neither seems willing to make a big directional bet yet.

Technical Levels to Watch

Technically, it looks as if the direction of WTI crude oil on Monday will likely be determined by the uptrend line from the January 7 main bottom at $55.65. This support, moving up at a rate of $0.36 per day, comes in at $63.57.

A sustained move above $63.57 will indicate the presence of buyers. If they can create enough upside momentum then look for a surge into $65.53 to $66.49.

A sustained move under $63.57 will signal the return of sellers. This would open the door for a potential drop into the 200-day moving average at $60.70.

More Information in our Economic Calendar.