Crude Swings on War Escalation and Ceasefire Hopes, Volatility Explodes

Update:

On Friday, Iran downed a US fighter jet – with the pilot reportedly ejecting to safety. Over the weekend a US rescue operation took place with Iran claiming to have downed multiple US aircraft. The conflict continues to escalate, and President Trump issued another deadline for Iran – which expires tomorrow.

Crude futures opened the Sunday session higher which drove down equities and risk assets. But, in the early European session, US allies reportedly made a breakthrough on the Pakistani brokered peace deal.

While the sourcing and viability around this headline is flimsy, Reuters is reporting that the current talks are for an immediate ceasefire and a full peace-plan to be proposed within 15-20 days. The Reuters journalists seem more optimistic on the proposal than Bloomberg, and it’s yet to see how Israel reacts to this plan.

Headlines will continue to produce two-sided volatility through the week. This conflict is coming to a precipice – a cease-fire, even if it’s short-term, would likely ease pressure on markets. We have seen ceasefire pump-fakes., promises, declarations of victory, promises of guarding convoys through the strait, remarks that we control the strait – – it’s very difficult to know what we should take seriously.

Price will likely remain two-sided through the week – but path of least resistance early on seems to be to the downside.

Technical Summary

Thursday – 113.41*** the previous highs are the most important level to watch for today. If the May contract can manage to rip through that level with volume and conviction, this could get ugly to the upside. A failure at this level heightens the probability of a consolidation lower, but above 100.

The bearish news flow overnight puts this breakout into question. If this ceasefire news ends-up being fake-news – there is likely to be pain to the upside. Energy markets are becoming strained – and price could become inelastic for a short period of time for some buyers. 105** is the next likely region of support – but technical generally aren’t going to matter on fundamental flipping news-flow.

Risk-management should remain a priority and anyone who speaks confidently about how this goes should not be taken seriously – – this is about as explosive and as unpredictable as it can get in commodities – – it’s a coin flip – – and we’re not in the business of coin flips when risk is this high.

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