Looking to the Futures
Oil Dips on US-Iran Agreement Hopes
President Trump called for the capture of Kharg Island then a peace agreement hours later, whipsawing oil futures during Thursday’s trading session. WTI for August delivery, /CLQ26, settled at $86.16 per barrel, down 2.18 from previous settlement.
Thursday’s WTI session opened with renewed threats against Iran, sending August futures as high as $91.62 per barrel. In a Truth Social post, President Trump said the U.S. would strike Iran that night and could take control of Kharg Island in the future. Hours later, he announced progress toward a Memorandum of Understanding, which pressured WTI to an intraday low of $84.30 per barrel.
Iran had not confirmed an agreement at the time of the announcement, with confirmation reportedly not coming until early Friday morning. The gap between headlines and confirmation has been a recurring feature of the conflict and may have contributed to reduced market confidence. The volatility also prompted the Senate Agriculture Committee to send a letter to the CFTC requesting a review of recent futures-market activity.
Kharg Island has remained a focal point for Trump given its importance to Iranian oil exports. Kharg is a small island in the Persian Gulf which processes ~90% of Iran’s oil exports, roughly 2.6 million bpd with capacity of 7 million bpd. The capture of this island would cripple Iran’s ability to get their oil to market, however, it would also prompt retaliatory strikes against US military personnel and other oil infrastructure in the region, further tightening global supplies.
A potential agreement may reduce some of the geopolitical risk premium, but supply normalization would likely take time. Inventories outside commercial storage would also need to be rebuilt. The Strategic Petroleum Reserve has declined by roughly 64 million barrels since the start of the year, to about 349 million barrels.
The latest EIA report showed a broad draw in petroleum stocks. Commercial crude inventories fell by 7.2 million barrels to 426.5 million barrels, while gasoline inventories rose by 0.2 million barrels to 215.1 million barrels. Distillate inventories declined by 0.2 million barrels to 102.1 million barrels. Refinery inputs averaged 17.0 million barrels per day, up 80,000 barrels per day from the prior week, with refineries operating at 95.3% of capacity.
Technicals
WTI August crude broke through the 50-day simple moving average of 88.14 but trading well above the 200-day SMA.
The 14-day RSI settled at 44.63% and indicates a weakening in price as it heads towards the oversold threshold of 30%.
The directional moving index indicates a strengthening bearish trend. The ADX is low but rising at 11.58. The positive directional index is low and weakening at 17.81 and below the negative directional index of 23.26, which is rising.
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