The price of crude oil is being influenced by two opposing forces. On one hand, there's a growing possibility of a peace deal, not just a ceasefire, between Ukraine and Russia. This is more likely now than it was just a few days ago. Additionally, OPEC+ has been increasing its output to remain relevant in the market, shifting away from its previous strategy of production cuts to inflate prices.
On the other hand, the threat of a potential conflict between Iran and Israel looms. If this were to happen, the oil markets would inevitably be pulled into the crisis.
Since the second scenario isn't yet imminent, crude oil prices fell on Tuesday as peace talks between Ukraine and Russia gained traction at the White House. The atmosphere at the White House suggests a potential bilateral meeting between the two presidents, which could then be followed by a trilateral meeting with President Trump, a self-described "dealmaker," at the centre of the negotiations.
As of 12:00 GMT on Tuesday, the prices of WTI and Brent were at $63.03 and $66.18 respectively. The price LNG, liquified natural gas, was at $2.85.
Of course, oil markets always operate on complex arena while constantly reacting to supply and demand fundamentals, geopolitical events, especially in the Middle East and the market sentiments, both real and hyped-up. The latest bearish signal is definitely caused by the hope of a potential peace deal Ukraine and Russia; if it were to happen, Russia would be able to sell its oil and gas without relying on shadow fleets that could boost the supply by leaps and bounds.
Since President Trump came to power on a platform of low energy prices, he seems eager to get the deal done to boost the supply. Perhaps President Trump knows the significance of the Russian output into the energy markets despite the increased output in the United States and other non-OPEC players.
Analysts believe the atmosphere in the White House on Monday while talks were going on was cordial and hopeful, as President Trump took the views of the Europeans leader onboard; it was not the one-man-show that his critics anticipated.
When the peace overtures gathered momentum on one front, the tension on another front is alarmingly increasing: an Iranian general, for instance, publicly declared that there was no ceasefire between Iran and Israel; not only did he predict yet another escalation, but also said, quite ominously, that it would be the 'last war', leaving so much for interpretation. In short, Iran remains defiant. This is a wild card that could upend the existing bearish outlook and send the prices up on a whim.
In the event of a renewed conflict, not only will the price of crude oil start rocketing, but also derail the flow of goods other than oil and gas through a crucial waterway close to Iran, the Strait of Hormuz. Iran has been threatening to close the narrow waterway in the Persian Gulf for months, even before the 12-day war between Iran and Israel; nearly a fifth of the global oil supply is going through the Strait of Hormuz.
It may not be easy for Iran, though. During the 12-day war, Iran floated the idea, only to abandon after China protested against such a move, citing its own interests - flow of oil for China and Chinese goods to the rest of the world. Since China is a key ally of Iran, the latter just abandoned the risky move.
All in all, for investors, traders, and consumers, the status-quo creates an environment of extreme uncertainty. While the short-term outlook may be one of a holding pattern as the market waits for more definitive news, the potential for a massive price swing in either direction remains high.
