Oil Price Fundamental Daily Forecast – Specs Overcooked Rally, Clear Buy the Rumor, Sell the Fact Situation

U.S. West Texas Intermediate and international-benchmark Brent crude oil rose to their highest levels since late-2014 on Monday, boosted by a looming decision on whether the United States will walk away from the Iran nuclear deal and the deepening economic crisis in Venezuela.

June WTI crude oil settled at $70.73, up $1.01 or +1.43% and July Brent crude oil futures closed at $76.17, up $1.30 or +1.71%.

Late in the session, prices retreated after President Trump announced in a tweet on Monday that he will deliver his decision on the Iran nuclear deal on Tuesday at 1800 GMT.

President Trump announced late Monday via Twitter that he will deliver his decision on the Iran nuclear deal on Tuesday at 1800 GMT. This news comes as a surprise since the crude oil markets had been operating with a May 12 deadline. Consequently, crude oil prices fell following the news.

In his making his decision, Trump will either continue suspending sanctions targeting Iran’s oil exports or reimpose the original penalties.

Forecast

Crude oil futures are trading lower early Tuesday as investors prepare for Trump’s decision on Iran. The financial markets are on edge because Trump risks alienating some of the United States’ closest allies and trade partners because refusing to grant the sanctions relief would imperil the nuclear agreement.

At 0754 GMT, June WTI crude oil futures are trading $70.02, down $0.71 or -1.00% and July Brent crude oil is at $75.54, down $0.63 or -0.85%.

The decision could also cause supply disruptions in the crude oil market because Iran is OPEC’s third largest crude producer. The concern has been the catalyst behind WTI’s rise to over $70.00 per barrel for the first time since November 2014.

Traders are Nervous

Despite the bullishness leading up to the Iran decision and the aggressive buying from the hedge funds, crude oil traders are nervous about Trump’s decision because the President can either scrap the deal while fulfilling a campaign pledge, or somehow push the decision into the future in order to give the U.S. time to work out any differences with its allies.

A few so-called Iran-watchers have speculated that Trump could pass on the sanctions at this time as a bargaining chip ahead of the nuclear talks with North Korea.

Some are saying that the Trump administration could restore the sanctions, but delay enforcing them in order to give Iran’s oil customers plenty of time to comply with the change. This may encourage Iran to flood the market with crude oil.

The key to the whole situation seems to be keeping the peace with the Europeans. Trump will cause problems with the Europeans if he walks away from the deal without giving U.S. allies a chance to shore up their business arrangements. On the other hand, Trump may be able to maintain good relationships with U.S. allies if he either pushes the entire decision into the future, or delays enforcing the sanctions.

Even if Trump walks away from the deal, his administration will have to compel countries to comply at a time when foreign powers see Iran as complying with an internationally negotiated deal. However, the impact of the sanctions will depend on several factors. That includes whether Iran begins accelerating its nuclear program, which could boost support for sanctions, or continues to abide by the terms of the deal in a bid to isolate the Trump administration.

I expect to see a volatile reaction to the announcement with a two-sided trade a strong possibility, however, I don’t expect this rally to go on forever. There is no guarantee that the other countries who signed the original agreement with Iran are going to back President Trump if he decides the U.S. is out of the deal. If this is the case, then the loss of supply will be minimal. This could actually pressure the markets that may have been overbought by speculators.

In other words, I can’t see a huge drop in Iranian exports unless all of the nations in the original deal decide in favor of Trump and the reimposition of the original sanctions.