Crude Plunges

Oil prices continue to push lower midweek with crude futures now down around 12% from Friday’s closing price. The sell off comes in response to Trump’s announcement this week that the US and Iran have agreed a deal to put an end to the war. While full details of the deal and a formal agreement are yet to be delivered, the news has been confirmed by Iran and oil prices have sold off heavily as a result. One key element of the  deal which has already been made public is that Iran will be allowed to start selling oil and fuel again immediately provided the Strait of Hormuz is fully reopened and Iran sticks to the terms of the deal.

Supply Impact

The news clearly has huge implications for the global supply outlook. Oil prices had been anchored around the $100 p/b mark since the war broke out earlier this year as Iran closed the Strait of Hormuz, heavily impacting global supply levels. With that supply set to return to market now, crude prices are falling accordingly and look set to fall further.

Deal Signing on Friday

The initial deal is set to be signed between the US and Iran on Friday before both sides enter a 60-day negotiations window to hammer out the broader deal and full details of the agreement. Provided the deal is signed on Friday and everything goes ahead as planned, oil prices should remain under pressure near-term as supply starts to move the Strait once again.

Technical Views

Crude

The sell off in crude has seen price breaking down out of the triangle pattern which had framed the consolidation since YTD highs were printed in March. Price is now below the 77.65 level and fast approaching a test of the 70.76 support zone. While below 84.60, focus is on a continuation lower towards 65.38.