The West Texas Intermediate (WTI) crude oil price retreated sharply, reaching its lowest level since May 7, as investors waited for the potential deal between the United States and Iran. WTI dropped to $92, down sharply from this month’s high of $110.92.
Crude oil prices plunge amid US-Iran deal hopes
The WTI plunged after a dramatic weekend, in which President Donald Trump caught the market by surprise. In a weekend that he was expected to attack Iran, Trump decided to focus on talking to the Iranians, a move that his top allies blasted.
Trump said that the deal being negotiated will reopen the Strait of Hormuz, a move that will lead to a supply surge in the coming months. However, a deal remains far-off, with negotiations between the two countries continuing through Monday.
By deciding to talk, rather than attack, it confirms that Trump is, indeed, between a rock and a hard place. An attack would have pushed crude oil prices higher as Iran had threatened to attack energy infrastructure in the region.
Most notably, Iranians had warned that they would expand their response to other places, a move that investors believed was to shut the Red Sea, where 12% of oil passes through. It would also have attacked top energy infrastructure in the region, including Saudi Arabia’s pipeline.
On the other hand, a deal will also mean that the US will make major concessions to the Iranians, who believe that they are winning the war. For example, Iranians will ultimately request a sanctions waiver, reparations, and control of the Strait of Hormuz.
These concessions explain why some of Trump’s top allies like Ted Cruz and Lindsey Graham, have blasted any talks with the Iranians. Trump sought to diffuse these concerns, writing that:
“If I make a deal with Iran, it will be a good and proper one, not like the one made by Obama, which gave Iran massive amounts of CASH, and a clear and open path to a Nuclear Weapon. Our deal is the exact opposite, but nobody has seen it, or knows what it is. It isn’t even fully negotiated yet.”
Trump’s announcements came on the Memorial Day weekend, which normally marks the start of the US driving season. This season will be tough for many Americans as the average gasoline price has jumped to $4.55.
WTI crude oil price technical analysis
WTI crude chart | Source: TradingView
The daily chart reveals that the WTI crude oil price has crashed in the past few days and is now hovering at the lowest level in weeks. It formed a down-gap on Monday and moved below the ascending trendline that links the lowest swings since March 10 this year.
It has also moved below the 25-day moving averages and the Supertrend indicator. Also, the Relative Strength Index (RSI) has continued falling this month. Most notably, there are signs that it has formed a head-and-shoulders pattern.
Therefore, the price will likely continue falling as sellers target the key support at $88. However, the Iran situation is still fluid, and a deal will be confirmed when Trump and the Iranians publish it. The end of talks without a deal will lead to higher prices.