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Iran Sanctions Push Prices Higher as Tensions Rise in Middle East

Market Overview

With Iran sanctions back on the table any dips in the energy complex should be short lived. While OPEC has stated that member nations stand ready to maintain price stability, the upside is favored given the markets propensity to drift higher and downplay any negative news. Additionally, a string of optimistic price forecasts from investment banks last week drew the market’s attention with Goldman Sachs targeting $82 per barrel this year and Bank of America targeting $100 per barrel by the end of 2019. All that said, we are a little over extended at the start of the week and could see some technical selling if geopolitical risk begins to ebb.

Volatility continues to fall with traders expecting a $0.07 move in ULSD and RBOB over the next 11 days from the settle on Friday. The general market environment remains favorable for commodities with traders looking to take on more risk as equities rally and treasury yields rise.

Technical Analysis

WTI Futures

WTI looks overbought on the technical side with highs challenging $72 per barrel. Price is a good $4 above any meaningful support and is within striking distance of channel resistance. The general trend is still higher, but we wouldn’t mind seeing it pull back to the $68 or $66 levels. Traders are pricing in a +/- $2.55 move from last weeks settle of $70.70. This gives us an expected range of $68.15 to $73.25.

ULSD Futures

ULSD followed WTI aggressively higher, clearing resistance around $2.15. Seasonal demand remains abnormally strong, but we are coming into channel resistance around $2.25. This level has served as a turning point in the past and we expect that trend to continue. If sellers can enter the market with conviction, we expect to see price fall to $2.10 in the next two weeks.

RBOB Futures

RBOB Futures have broken higher after taking out resistance at $2.15 and continue to lag behind ULSD futures in terms of price performance. The unusually high demand for ULSD has seen the July HO-RB product spread trade from a low near -$0.03 in March to a high of $0.0443 in May. RBOB remains the must susceptible to a pullback if we see weakness enter the energy complex. Current price is roughly $0.10 above meaningful support near $2.10.