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Oil in Rollercoaster Mode as Iran Talks Roil Market

Commodities Feb 16, 2022 05:02PM ET
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© Reuters.

By Barani Krishnan

Investing.com -- Oil prices fell like a brick in Wednesday’s post-settlement trade as apparent progress in Iran’s nuclear talks with world powers raised the specter of a million barrels or more of supply hitting the market at a time of continued inaction by OPEC+ to moderate the runaway rally in crude.

“We are closer than ever to an agreement,” Iran's top nuclear negotiator, Ali Bagheri Kani, tweeted after weeks of intensive talks between delegates from Tehran and the five permanent members of the U.N. Security Council — i.e. the United States, Britain, China, Russia, France — along with Germany.

Kani made clear in his tweet that "nothing is agreed until everything is agreed." 

But oil traders ran ahead of him, sending crude, which settled Wednesday’s trading up almost 2%, diving in after-hours trade.

By 5:00 PM ET (22:00 GMT), New York-traded West Texas Intermediate, the benchmark for U.S. crude, was down $1.45, or 1.6%, at $90.62. WTI had reached a session low of $90 in after-hours trade. It earlier settled Wednesday's regular trading at $93.66.

London-traded Brent, the global benchmark for oil, was down $2.94, or 3.1%, at $91.87. Brent settled the regular trading session at $94.81.

“Oil bulls could be facing a double-whammy within days,” said Adam Button, analyst at ForexLive. “1. It appears as though Russia-Ukraine fears were overblown and; 2. An Iran nuclear deal is inching towards conclusion.”

There were also worries of impending rate hikes by the Federal Reserve and what that could do to overall risk appetite across markets, said Button.

“Technically, the bulls shouldn't be too worried so long as $88.40 holds but it might be a case of easy-come, easy-go," Button said of WTI, adding that a low of $81-$78 could not be discounted if Iran continued to make progress in its discussions with world powers.

Iran is capable of putting anywhere between one and two million barrels per day on the market and is getting some of that out already with illegal sales that evade the U.S. sanctions on its crude exports. How much exactly it is already exporting is something that probably only Tehran knows.

The lift on the U.S. ban — a probability only if Iran demonstrates that it will not go down the path of making an atomic bomb with its nuclear program — is something oil traders always knew could happen some day. 

For context, the U.S. ban was originally in place before it was lifted in 2015 by then Democrat President Obama with the so-called P5+1 nuclear deal with Iran. 

But Obama’s successor Donald Trump, a Republican, canceled that deal in 2018 and reinforced the ban, decimating Iranian crude exports which reached a high of 4.0 million barrels in the non-sanction years.

President Joe Biden, a Democrat and former vice president to Obama, kept the sanctions in place after coming to office in January last year. His administration has, however, barely enforced any surveillance on Iranian exports and allowed talks for a deal to continue.

Iran’s potential re-entry into the market after a gap of nearly four years could complicate OPEC+’s strategy to keep oil supplies super tight to achieve maximum prices. From a pandemic era low of minus $40 per barrel for WTI, a barrel of U.S. crude had gotten to a high of $95 this week.

Iran remains a part of OPEC+ although the U.S. sanctions have made it an outcast within the 23-nation oil producers alliance. OPEC+ policy since 2018 has been almost completely dominated by one decision-maker — Saudi Arabia — acting with full backing from Russia. 

Iran and Russia are, however, strategic allies and form an axis in the Caucasus alongside Armenia. The two are also military allies in the conflicts in Syria and Iraq and have partnered in engagements on Afghanistan and post-Soviet Central Asia.

Oil in Rollercoaster Mode as Iran Talks Roil Market
 

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Comments (12)
Moses Wachira
Moses Wachira Feb 19, 2022 7:01AM ET
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I wonder if Iran will manage to plug the supply shortfalls in the short term given years of underinvestment in the oil fields.
Andrew Ulferts
Andrew Ulferts Feb 16, 2022 9:44PM ET
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Barani, did you see the Reuters article on here stating that we hit record fuel demand last week, and exceeded it this week? Maybe that is why there was such a push for the stockpile increase early in the year. Just a thought.
Shep De
Shep De Feb 16, 2022 7:35PM ET
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Appears Russia-Ukraine fears overblown? Eh, no, we've heard from U.S and Nato, Biden included, said, invasion a "distinct possibility" this morning. 14 minutes ago, too, we're hearing in news, "troops moving toward, not away, from Ukraine border."
Ernest Wong CA
Ernest Wong CA Feb 16, 2022 6:27PM ET
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Brent longs - Just marginally TP at $96.25 from the peak $96.45; then free fall all the way down as low as $90.56! Have added longs by $100k since $91.00 & now the close at $92.43. I'm eyeing $93.00 and setting 1st TP at $94.00
Barani Krishnan
Barani Krishnan Feb 16, 2022 6:27PM ET
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Ernest, my man, long time no hear! Hope all's well with you, mate :) Happy to see how deftly you're managing this. Stay in touch and bests.
Ernest Wong CA
Ernest Wong CA Feb 16, 2022 6:27PM ET
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Barani Krishnan  Thanks man. Yes it's been quite a while since our last chat. So far so good and let's wish volatility keeps on going like this but just no war no death. :)
văn đạt
văn đạt Feb 16, 2022 6:02PM ET
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Iran still exports smuggled oil, lift the ban, but the output is still the same Oil price still reaches 150 USD according to the plan at this time, everyone.
Ok Crude
Ok Crude Feb 16, 2022 5:56PM ET
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Iran will have thier cash flow back and attack if they fuse thier material And already have 🎯 on Israel and other US allies Biden is compromised by China and Russia he doesn't care along with Palosi and ignorant drms
Moh Aa
Moh Aa Feb 16, 2022 5:56PM ET
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Iran is no threat Dear. Israel and their lobbey in u.s. is using iran as a means to milk your republican friends of american taxpayer money.
Moh Aa
Moh Aa Feb 16, 2022 5:56PM ET
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Irans nuclear program is of peacefull nature.
Terry Campbell
Terry Campbell Feb 16, 2022 5:56PM ET
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Chris Tiernan
Chris Tiernan Feb 16, 2022 5:53PM ET
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I bet Isreal is real happy about this deal Iran cannot be trusted at all. Biden shuts our country down and enriches are enemies
Chris Tiernan
Chris Tiernan Feb 16, 2022 5:49PM ET
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More money for Iran means more Nuclear Developement Biden and Obama are traitors
Christopher Jenkins
Christopher Jenkins Feb 16, 2022 5:36PM ET
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1) extra supply today is (counterintuitively) good for Bulls as oil was pushing $100 and some were talking about oil racing past $125. Oil prices above $100 likely would do damage to demand, which would lead to higher supplies and lead to significant downward pressure on oil, whipsawing the market into one characterized by excess supply; 2) as you alluded in your article, Iran already is pumping and delivering oil. A deal will only allow them to sell to more customers and raise the prices they are able to charge. How much additional capacity a deal will create is unknown since we don’t know how much they’re currently exporting, but any additional supply would help bring pricing into greater equilibrium and help avoid demand deatruction; and 3) the Russia threat (and the bery significant effect this would have on energy) hasn’t gone away metely because Putin *claimed* to have withdrawn forces. To date, there is no evidence Russia has moved any troops away from proximity to Ukraine.
Barani Krishnan
Barani Krishnan Feb 16, 2022 5:36PM ET
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Totally on the ball, Chris. The devil is in the details, so to speak. My earlier wrap of the day at regular market hours told of the existing Russian threat.
Ion Alexuta
Overburn Feb 16, 2022 5:35PM ET
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Money is money you need money to don nukes, so 2 years in business and then back out
 
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