| Commoditiy | Price | Weekly Change | 50day-Ave | 100day-Ave | 200day-Ave |
|---|---|---|---|---|---|
| Brent ($/b) | 83.38 | -10.87 | 100.53 | 92.68 | 78.33 |
| US WTI ($/b) | 80.60 | -10.70 | 96.12 | 87.35 | 73.73 |
| ICE Gasoil ($/MT) | 924.00 | -146.75 | 1,165.56 | 1,064.79 | 872.35 |
| Jet CIF NWE ($/MT) | 974.83 | -182.38 | 1,304.09 | 1,210.40 | 963.36 |
On Sunday it was announced that Iran and the US have agreed a deal, the oil market is down, and Brent is under 83 \$/b this morning.
Although this is the positive news everyone has been waiting for, the deal has not yet been signed. It's going to be signed on Friday in Switzerland and although the terms have been agreed they have not been published so we don't really know much about the detail of it other than what the two sides have been saying. Trump has announced a removal of the US naval blockade, he also announced the “toll free opening of the Strait of Hormuz”. Pakistan confirmed that both sides have agreed to cease hostilities, which should create the environment for normalising shipping through the Strait. Trump’s declaration that it will “toll free”, suggests Iran may have has given up its ambition to retain control of the Strait, but the Iranians have not confirmed that. A requirement for peace in Lebanon is apparently also included, which could be a potential risk to the deal given Israel attacked Beirut over the weekend. What we do know though is that this is not the final deal only a starting point. It is a memorandum understanding which is high-level agreement with the detail being worked out later. The process for the finer detail has apparently already started and it may be by the time this interim deal is signed on Friday, more of the groundwork for a future comprehensive deal will already have been laid.
Will the memorandum of understanding satisfy shipping and insurance companies that Strait is safe is the immediate question. We know that mines have been spotted in the Strait of Hormuz, so a mine clearing operation will be needed. It is not going to be easy to convince the shipping and insurance industries that it is safe after everything that has happened in the last few months. Most might at least wait until the interim deal has been signed, so Trump’s suggestion that the Strait is now open seems optimistic, though some may try to pass through. Others may even want to wait until a comprehensive deal has been agreed, given the risk of the talks falling apart.
Brent is only around 10 \$/b above its price when the war started, so significantly less risk premium appears to be priced in. The 100-day moving average at 92.68 \$/b was broken last week and the 200-day moving average is around 78 \$/b. The risk over the coming days is that in the absence of a published deal, the two sides appear at odds over the terms of it on what they say in public. As the groundwork for technical talks is laid, we may get some news on how that its progressing which might shed some light on how challenging or otherwise those talks might be. The biggest risk may be the conflict between Israel and Hezbollah and how Iran and the US react to any developments there.
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