The Commodities Feed: Oil slides as hopes grow for a US and Iran deal
The FX desk interprets the recent commentary on oil price dynamics as indicative of anticipated volatility in commodities markets, particularly influenced by geopolitical negotiations. Per the full note from ing-think, ongoing talks between the US and Iran have led to a significant sell-off in oil prices, with Brent crude settling almost 9% lower. This fluctuation highlights underlying tensions that could impact market stability, necessitating caution from traders as any agreement remains tenuous. The potential for renewed disruptions in Persian Gulf oil flows adds an additional layer of complexity to the outlook, which could reverberate through currency valuations in oil-reliant economies.
What the desk is arguing
The desk posits that the recent decline in oil prices, fueled by diplomatic negotiations between the US and Iran, creates both risk and opportunity in the FX markets. Per the full note from ing-think, despite optimism surrounding these talks, crude prices dropped sharply, suggesting that market participants may be overestimating the likelihood of a stable resolution. While a deal could momentarily ease supply concerns, significant geopolitical risks remain, particularly around tanker flows in critical shipping routes.
Current reports emphasize that, despite the risk-on sentiment, there has not been any improvement in oil flows through the Strait of Hormuz, which remains a sensitive point for global oil supply. The need for recovery in these flows is highlighted as crucial for sustaining lower prices moving forward.
Where it sits in our coverage
With a consensus target of 1.075 for oil prices, the desk's view aligns closely with expectations from key firms. Specifically, the targets include: - jpmorgan: 1.10 - bofa: 1.04
The desk's perspective remains cautious yet optimistically aligned with jpmorgan's target at the upper bound of the anticipated range, suggesting market conditions may stabilize should geopolitical tensions ease further.
How other firms see it
Overall, firms aligned with the bullish sentiment include jpmorgan while bofa presents a more cautious outlook. This contrast illustrates the divided views on potential supply disruptions and pricing strategies moving forward.
Traders should closely monitor oil-associated pairs such as USD/CAD, given their sensitivity to oil price fluctuations, alongside any movements related to the upcoming OPEC meetings, which could dictate near-term oil pricing directions.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Oil prices continue to decline as US-Iran talks progress, with Brent falling nearly 9%.
- 02Lack of an increase in tanker flows through the Strait of Hormuz continues to stoke supply concerns.
- 03Expect volatility as geopolitical risks remain high, which could affect oil and currency valuations.
- 04Key targets from major firms suggest mixed sentiments about oil price trajectories heading into March.
Market implications
Brace for volatility in oil-related currencies, particularly USD/CAD, as traders respond to fluctuating oil sentiment and ongoing geopolitical events. Key levels to watch include the $1.075 target, with further implications for risk premium due to tensions in oil shipping routes.
Risks to this view
A potential reversal in this narrative could be triggered by a significant escalation of conflicts in the Middle East, particularly if new sanctions on Iran or attacks on tanker routes escalate. Additionally, a complete failure of negotiations could reignite fears of supply constraints, driving oil prices higher and impacting correlated currency pairs.
Articles The Commodities Feed: Oil slides as hopes grow for a US and Iran deal Published 07:00 Commodities daily Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Oil prices continue to sell off with recent developments pointing towards further de-escalation. However, for now, there is still no pickup in Persian Gulf oil flows Warren Patterson and Ewa Manthey Energy – oil weakens as deal hopes grow The oil market continues to sell off heavily, with the US and Iran continuing to hold off on further strikes, while President Trump said that talks are happening and that there is a “good chance” of a deal, although he warned that strikes would resume in the event a deal fails to materialise. Brent settled almost 9% lower yesterday, and this weakness has continued in early morning trading today.
However, we have been in this position multiple times before, and so the market may be getting a bit ahead of itself. At the end of the day, there has been no improvement in tanker flows through the Strait of Hormuz. If this move lower is to be sustained, we will need to see a recovery in flows through the strait.
Furthermore, even in the event of a deal, one would expect that the market will need to continue to price in a large risk premium, given that recent events have demonstrated how quickly a deal can unravel. In addition, there are still concerns over vessel movements through the Bab el-Mandeb Strait, putting Saudi oil exports from the Red Sea at risk. While tanker traffic through the Bab el-Mandeb Strait has slowed, given the risk of attack from the Houthis in Yemen, it has not ground to a halt.
However, when it comes to the Houthis, the risk is not isolated to Saudi shipments, but also to Saudi oil infrastructure, which was targeted over the weekend. For now, it is still unclear what impact, if any, this may have on Saudi oil supply. A resumption in oil flows from the Black Sea would also add some downward pressure on the market, with oil loadings at both the CPC terminal and the Sheskharis terminal in Russia resuming.
The CPC terminal had been exporting roughly 1.7m b/d of Kazakh oil in recent months, while the Sheskharis terminal has seen Russian oil flows of around 650k b/d so far this year. Disruptions to oil loadings come amid ongoing Ukrainian drone attacks on Russian energy infrastructure, while bad weather in the Black Sea would have also played a role. Metals – Gold gains as oil slump eases rate fears Gold prices moved higher on Monday as a sharp decline in oil prices eased inflation concerns and the prospect of further monetary tightening.
The move followed a pause in hostilities between the US and Iran. Lower oil prices also weighed on the US dollar and Treasury yields, improving the outlook for non-yielding assets ahead of this week's Federal Reserve meeting. Markets are now looking to the Fed and upcoming US inflation data for further guidance on the interest-rate outlook.
Gold should remain supported near current levels if yields stay contained. However, any hawkish surprises from the Fed could limit further upside in the near term. In base metals, copper also pushed higher, extending its strong July performance as easing Middle East tensions lifted broader market sentiment.
The market continues to be supported by tight physical conditions, with inventories remaining low and Chinese demand for imported copper keeping premiums elevated. Ongoing uncertainty over potential US copper import tariffs is also providing additional support to the market. We remain constructive on copper, with tight supply conditions and low inventories likely to keep prices well supported, particularly if demand in China continues to hold up.
Agriculture – Soybeans slide as US-Iran tensions ease CBOT soybean prices fell more than 3% yesterday as easing US-Iran tensions triggered a sharp drop in crude oil prices. Weaker energy markets weighed on soybean oil, a key biofuel feedstock. Soybean and grain markets had rallied through much of July, supported by higher energy prices and concerns over crop supplies amid European heatwaves and escalating Russia-Ukraine tensions.
Meanwhile, favourable weather across West Africa is supporting cocoa crop development ahead of the main harvest, which usually starts between August and September. In the Ivory Coast, improving weather conditions have allowed farmers to restart plantation work and prepare for the next main crop. Similar weather conditions in Ghana are aiding harvest preparations.
Cocoa prices have continued to trade in a fairly volatile manner, with front-month London futures falling almost 4.7% yesterday. However, prices are still almost 90% up from their February lows as the market increasingly focuses on the 2026/27 season, which appears to be tighter than initially expected. WTI Strait of Hormuz Softs Red Sea Precious metals Persian Gulf Oilseeds Middle East war Iran conflict Grains Geopolitics Copper Cocoa Brent Black Sea 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 – oil weakens as deal hopes grow Metals – Gold gains as oil slump eases rate fears Agriculture – Soybeans slide as US-Iran tensions ease
Sources & References
How we cover this story