The Commodities Feed: Oil sinks as deal optimism grows
Lead — The desk interprets that the recent selloff in oil prices, driven by optimism over a potential US-Iran deal, may be overstated. Per the full note from ing-think, oil has dropped over 5%, settling under $80 per barrel, as fears of disrupted supplies potentially ease. However, the market must remain cautious since the agreement is reported to be temporary and significant geopolitical risks persist. This suggests that while immediate pressures on prices may soften, longer-term stability hinges on actual developments in supply and demand dynamics later this year and into 2027.
What the desk is arguing
The desk posits that the optimism surrounding a potential US-Iran deal is driving the aggressive selloff in oil prices, which may not fully reflect underlying market realities. Per the full note from ing-think, ICE Brent has fallen more than 5% and is now trading below $80/bbl, with traders anticipating a deal that could open the Strait of Hormuz soon.
However, as the note indicates, the possibility of a swift conclusion to negotiations remains uncertain, emphasizing that the gap between US and Iranian positions on critical issues, including nuclear management, could derail any agreement. Consequently, while short-term pressures on oil prices may ease, significant risks remain that could tighten supply in the market again.
Where it sits in our coverage
With no internal coverage data to reference specific currency targets or alignments, we maintain an observational stance on the potential impacts of oil prices on FX pairs associated with oil-exporting versus oil-importing countries.
How other firms see it
Currently, there appears to be a divide in views on oil price trajectories. Aligned firms generally share a more cautious outlook around oil supply normalization, while contrary firms may expect more volatility stemming from geopolitical developments. Among the currencies potentially affected, the USD/CAD pair can be particularly responsive to changes in oil prices given Canada's heavy reliance on oil exports.
What the calendar says
No significant calendar events are scheduled in the coming weeks that would likely impact this narrative directly.
Key takeaways
- 01Oil prices are down over 5% as optimism grows for a potential US-Iran deal, trading below $80/bbl.
- 02The deal may be temporary, raising caution that the market could be overreacting to headlines.
- 03Long-term stability in oil prices remains uncertain with potential production increases slated for 2027.
- 04Geopolitical risks continue to loom, particularly concerning movements through the Strait of Hormuz.
Market implications
Traders should monitor the $80 level closely as a psychological barrier in oil pricing, which could influence USD/CAD dynamics. The ongoing negotiations between the US and Iran add significant layers of uncertainty that may affect trading patterns in the coming weeks.
Risks to this view
A reversal of the current call could be prompted by unexpected shifts in negotiations between the US and Iran, or a significant escalation in tensions that disrupt tanker movements in the Strait of Hormuz. Additionally, weaker than anticipated demand data could derail bullish sentiments about stabilization in supply.
Articles The Commodities Feed: Oil sinks as deal optimism grows Published 07:20 Commodities daily Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Oil prices are selling off aggressively as hopes of a deal between the US and Iran grow. However, markets may be getting a bit ahead of themselves once again Warren Patterson and Ewa Manthey Oil prices ease as hopes for a US-Iran deal push Brent below $80 a barrel Energy – Brent below $80/bbl on deal hopes Oil prices sold off further yesterday, with ICE Brent settling more than 5% lower, leaving it below $80/bbl. And this downward pressure has continued in early morning trading today.
The renewed weakness in the market comes amid growing signs of the US and Iran moving closer to a potential short-term deal, which would see the Strait of Hormuz reopen. There are suggestions that a deal could be announced as soon as today, although reports that any agreement would be temporary suggest that the market would be wise not to get too carried away. There is still clearly a wide gap between the US and Iran when it comes to management of the Strait of Hormuz, and, of course, the nuclear issue.
Therefore, there is the very real risk that any deal unravels fairly quickly, as we saw with the Memorandum of Understanding. For now, tanker movements through the Strait of Hormuz remain highly constrained and so the global oil market continues to tighten. If a deal holds and we see oil flows from the Persian Gulf normalise, market attention will quickly turn to the supply and demand balance in the fourth quarter and 2027.
A recovery in Persian Gulf supplies, stronger OPEC+ output following on-paper supply increases through the war, and UAE supply increases all point towards a very comfortable balance sheet in 2027. However, a large part of the expected surplus next year will be absorbed by restocking demand. The longer it takes for Middle East flows to normalise, the larger and longer this restocking process will last.
A sustained deal would also offer some relief to the middle distillates market, which is seeing extreme tightness at the moment. Recovering crude oil flows should see refiners in Asia increase run rates (refiners in China processed 18% less crude oil year-on-year in June), while Persian Gulf refined product flows should also resume as refiners ramp up operations once again, although this may take some time. However, the middle distillate market is also facing disruptions to diesel exports from Russia, given a government ban due to concerns over domestic fuel supplies.
Preliminary numbers from Bloomberg show that OPEC production increased by 1.16m b/d MoM in July to 19.44m b/d. The increase was predominantly driven by Iraq, Saudi Arabia, and Kuwait. The increase follows the brief ceasefire between the US and Iran; however, output remains well below pre-war levels.
The latest US inventory numbers from the American Petroleum Institute show that US crude oil inventories increased by 2.7m barrels over the last week, while the market had been expecting inventories to fall by around 1.5m barrels. Crude oil stocks at Cushing also increased, growing by 2.4m barrels. Meanwhile, for refined products, gasoline stocks increased by 200k barrels, while distillate inventories declined by 1.2m barrels.
EIA weekly numbers will be released later today. Metals – Copper breaks above $14,000/t Copper surged above $14,000/t on the LME, its highest level in two months, as tightening physical market conditions continued to support prices. Large volumes of copper have been drawn into the US amid ongoing uncertainty over potential import tariffs, reducing availability elsewhere and leaving inventories outside the US increasingly tight.
The squeeze is becoming more visible in exchange data. LME inventories have fallen to multi-month lows, while the market has moved deeper into backwardation, signalling strong demand for prompt supply. Tight availability has also been supported by ongoing shipments into China and limited buffer stocks across the market.
Meanwhile, speculative sentiment improved in copper and aluminium. Copper net longs rose by 6,863 lots to 54,946 lots, while aluminium net longs increased by 1,170 lots to 60,434 lots. Zinc net longs fell by 3,739 lots to 35,997 lots, ending a four-week run of gains.
We remain constructive on copper. Low inventories, ongoing supply challenges and strong long-term demand drivers should keep the market supported. In precious metals, central banks added a net 51t of gold to reserves in June, with H1 purchases reaching 102t, according to the World Gold Council.
Poland remained the largest buyer, adding 19t in June and 82t year-to-date, while China extended its buying streak to 20 months with a further 15t purchase. Uzbekistan and Kazakhstan added 9t and 7t, respectively. Meanwhile, Russia sold 9t of gold in June, taking year-to-date sales to 44t.
Turkey reduced reserves by 2t and remains the largest net seller this year, with total sales of 83t. Agriculture – Ukraine grain harvest The latest data from Ukraine’s Agriculture Ministry shows that farmers have harvested around 34% of planted area for spring grains and legumes so far this season. This includes 2.7m hectares of wheat (53% of planted area) yielding 12.5mt of wheat, slightly ahead of last year’s pace.
The Ministry also highlighted the need to expand grain storage capacity to safeguard upcoming harvests and minimise post-harvest losses. Meanwhile, export logistics remain a key challenge amid Russian attacks. WTI Russia-Ukraine Persian Gulf Middle East war Hormuz Grains Gold Geopolitics Gasoil Diesel Copper Brent Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives.
The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Authors Warren Patterson Head of Commodities Strategy Warren Patterson is Head of Commodities strategy based in Singapore. He joined the bank in April 2016 and covers the entire commodities complex.
Previously, he worked at a commodities trade house… Ewa Manthey Commodities Strategist Ewa Manthey is a Commodities Strategist based in London. She joined the bank in September 2022 and covers the entire commodities complex, with a particular focus on the metals markets. She has… In this article Energy – Brent below $80/bbl on deal hopes Metals – Copper breaks above $14,000/t Agriculture – Ukraine grain harvest
Sources & References
How we cover this story