Crude prices are falling today on the back of Trump’s so-called ‘Economic D-Day’ announcements yesterday. The US unveiled a sweeping new package of sanctions against Iran including sanctions for countries who refuse to cut ties with Iran. The US is seeking to financially isolate Iran as a way of driving it towards agreeing a peace deal and reopening the Strait of Hormuz. The key piece of the puzzle here is the extent to which Iran’s trading partners comply with the sanctions, specifically China which is the biggest buyer of Iranian oil.

Optimism Returning?

Looking at price action today, it seems that traders feel the measures announced stand a good chance of pushing Iran towards a deal, given the sell off we are seeing in crude. However, China has criticised the plan and the big risk is that it ignores the US’ warning and continues trade with Iran, leading to a fresh US/China trade war. In either scenario, however, crude prices should continue lower with any sign of a US/China trade war to weigh on crude demand expectations.

Iran Reaction

In reaction to the news, Iran said that it is fully prepared to counter the US/ measures and also warned that its main trading partners (Russia and China) were unlikely to comply with the US sanctions. However, there are reports emerging today claiming that the Iranian govt is seeking a return to the June peace accord signed with the US. If we hear anything concrete regarding resumed negotiations or a ceasefire, this should further weigh on oil prices as traders grow more optimistic of a deal being agreed.

Technical Views

Crude

The rally in crude has stalled for now on the latest push above 84.60 with price now turning back below that level. With momentum studies turning lower, focus is on a test of support at the 77.65 level next with 70.76 the deeper level on the radar for bears.

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Written by James Harte

With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.