Crude oil prices started the week with a dip on renewed optimism about a possible peace deal between the United States and Iran, following reports about mediation talks between Iran and Qatar over the weekend.
At the time of writing, Brent crude was trading at $109.82 per barrel, and West Texas Intermediate was changing hands for $100.57 per barrel, despite a statement by Iran’s Foreign Minister Abbas Araqchi that said Tehran was prepared for “both defence and diplomacy”, as cited by Reuters.
ING commodity strategists, meanwhile, noted separate reports about President Trump signaling he was ready to “give diplomacy a chance” but added that “The price action in oil in recent weeks reflects a market increasingly bracing for the potential for more hostilities between the US and Iran.” Besides, Trump has also indicated in recent days that he was ready to resume hostilities.
“Lingering hopes of some form of diplomatic progress, combined with the absence of any meaningful military escalation over the weekend, have taken some of the immediate heat out of prices for now,” KCM Trade’s chief market analyst Tim Waterer said, as quoted by Reuters earlier today. Whether these hopes are justified should become clear soon enough, and that will set the tone for oil prices for the rest of the year.
In case of an escalation, the price direction is clear enough. In the absence of new U.S. and Israeli strikes on Iran, some of the upward potential would be gone. The question is how much and for how long, assuming the Iranian-Qatari talks fail to result in a path to a firm peace agreement. With Iran insisting that all its conditions for a peace deal must be met and the U.S. repeatedly indicating it is disinclined to do that, chances are a failure is the most likely outcome of those talks.
By Irina Slav for Oilprice.com
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