Oil sinks more than 5% as market more optimistic about U.S.-Iran deal this time

[Data analyzing in commodities energy market: the charts and quotes on display. US WTI crude oil price analysis. Stunning price drop for the last 20 years.]
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Crude oil futures settled at six-week lows Wednesday on rising optimism that the U.S. and Iran are progressing toward a deal to end the conflict and reopen the Strait of Hormuz.

Iran's state broadcaster reported a draft framework being negotiated with the U.S. includes restoring commercial shipping to pre-war levels within a month while Iran and Oman would oversee shipping in the strait.

White House officials denied the Iranian report, and President Trump said he was "not satisfied" with the negotiations but indicated that he preferred to keep negotiating while not excluding further military action.

"A leader from the Iranian military stated that the possibility of returning to war is low, which has ​many traders believing a peace deal is getting closer," BOK Financial's senior VP of trading Dennis Kissler said in a note. "It seems the extremely tight global supplies that had been factored into crude are ​beginning to lessen."

Traders have grown particularly cautious about holding long exposure to oil ahead of headlines showing progress in ending the war, according to Rebecca Babin, senior energy trader at CIBC Private Wealth Group.

"There does appear to be some position unwinding accelerating the move lower, but more importantly, there's a real reluctance to buy this dip," Babin said in a note.

"This has been a stronger or longer-lasting price response to a potential deal than we have seen since the ceasefire," Ajay Parmar of energy intelligence firm ICIS said in a note, adding that both sides have incentives to reach a deal.

Iran cannot get its oil out due to the U.S. blockade of the Strait of Hormuz, while the rise in U.S. Treasury yields is "really not good for the U.S. economy," meaning President Trump "cannot lower interest rates the way he wants to," Parmar wrote.

Crude oil ⁠stockpiles in the U.S. fell ​by 2.8M barrels last week, the sixth straight week of declines, and gasoline inventories fell by 3.2M barrels, according to ​market sources citing data from the American Petroleum Institute.

Front-month Nymex crude (CL1:COM [https://seekingalpha.com/symbol/CL1:COM]) for July delivery dipped 5.5% to $88.68/bbl, and front-month Brent July crude (CO1:COM [https://seekingalpha.com/symbol/CO1:COM]) slid 5.3% to $94.29/bbl, the lowest settlement value for both benchmarks since April 17.

U.S. natural gas futures (NG1:COM [https://seekingalpha.com/symbol/NG1:COM]) gained, helped by short-covering as the Nymex June contract expires and summer approaches; the front-month contract for June delivery jumped 5% to $3.040/MMBtu.

ETFs: (USO [https://seekingalpha.com/symbol/USO]), (BNO [https://seekingalpha.com/symbol/BNO]), (UCO [https://seekingalpha.com/symbol/UCO]), (SCO [https://seekingalpha.com/symbol/SCO]), (USL [https://seekingalpha.com/symbol/USL]), (DBO [https://seekingalpha.com/symbol/DBO]), (DRIP [https://seekingalpha.com/symbol/DRIP]), (GUSH [https://seekingalpha.com/symbol/GUSH]), (USOI [https://seekingalpha.com/symbol/USOI]), (UNG [https://seekingalpha.com/symbol/UNG]), (BOIL [https://seekingalpha.com/symbol/BOIL]), (KOLD [https://seekingalpha.com/symbol/KOLD]), (UNL [https://seekingalpha.com/symbol/UNL]), (FCG [https://seekingalpha.com/symbol/FCG]), (XLE [https://seekingalpha.com/symbol/XLE])

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