After falling to a low at $42.36 on the nearby contract at the end of December, the price of crude oil recovered and reached its most recent peak at $57.88 on March 1. Last week, the price of the energy commodity pulled back to a low at $54.52, but on Tuesday, March 12 the price was back around the $57 level. The price of crude oil climbed steadily from late December through late February, but since February 15 it has settled into a range from $54.52 to $57.88. The $3.36 trading back is a far cry from the price action from October 2018 through the first two months of this year.
As the daily chart of April futures highlights, price momentum and relative strength metrics are sitting in neutral territory and historical volatility at just under 20 percent is well below the over 70 percent reading in late 2018. At the same time, open interest which is a metric that measures the number of open long and short positions has been edging lower and stands at just over two million contracts as of March 11.
Crude oil has settled into a trading range, but it may just be a matter of time until volatility returns to the energy commodity. In May, US President Trump will decide if he will extend exemptions to the eight countries that purchase crude oil from Iran. India, the world’s second most populous nation, buys approximately 300,000 barrels of Iranian crude oil each day. The Indian government recently requested permission from the US to continue purchasing the energy commodity after the exemption expires in May.
With sanctions on Iran and Venezuela, the US government has curtailed output from two of the world’s leading producers and member of the international oil cartel. When the first sanctions on Iran took effect in November 2018, the exemptions issued by the US took the market by surprise and contributed to the price decline that brought the price of crude oil to its low at $42.36 per barrel. Now that the expiration date is approaching, the oil market will hold its breath and volatility could increase over the coming weeks as the deadline in May approaches. The decision could hinge on the outcome of trade negotiations between the US and China.
A new and improved agreement on trade that ends the ongoing dispute could turbocharge China’s economy leading to an increase in demand for oil and many other industrial commodities. If the price begins to rally, it is more likely that President Trump will grant extensions for the exemptions to the eight nations buying the energy commodity from Iran. However, if there is no trade deal and the price of oil and other commodities begin to move to the downside, it is likely that the President of the US will move to tighten economic the noose around the theocracy in Teheran by not granting extensions and allowing the exemptions to expire. Fasten your seatbelts; the crude oil market could become highly volatile over the coming weeks as the market prepares for a decision on Iran.