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Iran Speculation Takes Center Stage Ahead of President’s Comments

Market Overview

Weekly volatility has picked up as President Trump is scheduled to make an announcement on the Iran nuclear deal today at 2:00 pm EST. Implied volatility for prompt month WTI futures rose from a low around 26% last Friday to a high over 32% following the Trump announcement. At current levels, the market is pricing in a 1 standard deviation move in ULSD from Friday’s close of roughly +/- $0.073 for the week.

Underlying Month 5/4 Settle Imp. Vol. Weekly Vol. +/- 1 Dev Upper 1 Dev Lower 2 Dev Upper 2 Dev Lower
ULSD June 2.1540 24.13% 3.35% 0.0722 2.2262 2.0818 2.2984 2.0096
RBOB June 2.1140 23.90% 3.32% 0.0702 2.1842 2.0438 2.2543 1.9737
WTI June 70.73 31.77% 4.41% 3.12 73.85 67.61 76.97 64.49

In early trading today, CNN reported that President Trump will not pull out the Iran deal but will also go ahead with the sanctions. Other news agencies have not confirmed the CNN report and the President has not issued a statement. He is still scheduled to speak later today.

WTI futures fell sharply after the announcement and pushed below $68 per barrel. If sanctions are on still on the table, we could see a rebound in price as Iran’s oil exports could be drastically reduced.

While the market is technically overbought, the fundamentals remain bullish. A positive announcement for the Iran deal could see prices drop as traders start to remove risk premium that was priced in over the last week, but the overall drift should remain positive. Analysts are expecting draws in excess of -1.0 million each across crude, distillate, and gasoline for the week ending 5/4/2018. Venezuela’s problems continue to worsen and offer support at lower levels. While their oil production is flat around 1.5 million barrels, the country’s hostile stance to foreign oil companies and their crumbling infrastructure call for further losses in production rates.