Whatever you pick, it probably isn’t going to be easy to stick to in the coming days and weeks.
If you’re a momentum trader, then you’ll probably relish playing the volatility.
But if you’re a directional trader, then that easy trade of the past two months—where crude seemed on a one-way ticket to $100 a barrel and beyond—has become trickier.
To be fair, triple-digit pricing could still happen anytime. Headlines even remotely suggesting an advance or buildup of Russian troops targeted at Ukraine are capable of adding anywhere from $3 to $5 to the price within minutes.
And while a single missile hasn’t been fired in the conflict, crude has gained some $20 over the past 10 weeks, mostly from the war of words between the United States and Russia since the Ukraine crisis erupted on Nov. 21.
But as swift as the price breakouts have been on headlines of aggression, so too were the tumbles that came on suggestions of mediation.
The pendulum has swung even more wildly over the past 48 hours as Tehran inched towards reviving its 2015 nuclear deal with world powers that would eventually take US sanctions off its oil—and pave the way for the legitimate return of some one million barrels per day from Iran to the market.
In fact, Iran and Russia’s risks are polar opposites—the first represents a bear case (more barrels eventually from Tehran) and the second a bull case (US sanctions on Russian energy exports in the event of an invasion)—so it pays to examine the permutations in each.
The draft of the enhanced accord offered by Western powers to Iran suggests various phases of surveillance and engagement to bring Tehran back into compliance with its 2015 nuclear agreement.
Most importantly, according to Reuters’ reports on the draft, Iran has to immediately stop further uranium enrichment that would advance it toward achieving full bomb-grade capability.
Only if it can withstand that stick, would the carrot follow, i.e., billions of dollars of previous oil sale money legitimately withheld from the Islamic Republic’s coffers and the gradual removal of sanctions that would let it export its oil freely—albeit with continued monitoring of its nuclear commitments.
Tehran breached many restrictions in the 2015 agreement after former President Donald Trump pulled the US out of the pact and reimposed sanctions on Iran. While the original accord capped uranium enrichment at 3.67% fissile purity, Iran is now enriching to up to 60%, close to weapons-grade, according to sources quoted by Reuters. Nuclear Deal 2.0 calls on the Mullahs to suspend enrichment at above 5% purity and return to the core 3.67% eventually.
One of the relief measures for Tehran under the proposed new accord is unfreezing of about $7 billion in Iranian funds stuck in South Korean banks under the sanctions imposed by Washington. This is to be in exchange for the release of Western prisoners held in Iran, which US lead negotiator Robert Malley has suggested is a requirement for a deal.
Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.
This article was originally published here.
