Summary:
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Oil prices begin lower on talk of US sanctions waiver
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Price has since recovered; close to filling the gap
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Longer term uptrend remains in tact
There was a negative start to the week for crude markets, with oil dropping down to its lowest level since last Monday after opening with a sizable gap lower. The cause of the weakness came after reports that the US may grant waivers to sanctions against Iranian oil exports, which are set to kick in next month. Saudi Arabia has also been cited as stating that the kingdom would replace any shortfall amongst OPEC members should there be significant disruption in Iranian production. These stories are important to the markets as the main fundamental premise behind the strong recent rally was that the imminent US sanctions on Tehran would take a large amount of supply off the table and therefore push prices higher.
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Oil gapped lower by around 50 ticks on the open after the weekend and continued lower before finding support near prior lows of 82.68. Since then the market has bounced and come close to closing the gap. Source: xStation
Not only were the US expected to stop any crude purchases from the start of next month, there was more than a hint of suggestion that they would pressure other countries into the same actions. Given this narrative it’s not hard to see why these latest stories could be deemed negative for crude and explains the earlier declines. Having said that, the US have shown very little inclination to step back on this front previously and even if some Iranian crude can still be sold, the volumes will likely be far less than full production. Recent figures have shown a drop in Iranian output well before any sanctions come into effect, and even if there are some exemptions a supply shock is likely still coming.
Oil has pulled back in recent sessions but still remains in a clear uptrend after breaking above 79.75 a couple of weeks back. The market has come off the upper Bollinger band but is still towards the upper reaches. Source: xStation
