Oil Rebounds As New Element Of The Iran/U.S. Nuclear Talks Spooks Traders

But at least one pundit thinks Monday's sell-off was overdone: File Image/Pixabay

Despite new sanctions against Iran that are part and parcel of U.S. president Donald Trump's goal of persuading the Islamic republic to agree to a new nuclear deal (the progress of which caused a 2 percent-plus drop in crude prices in the previous session), the sanctions caused a substantial gain in prices on Tuesday.

As of 1758 GMT, Brent rose $1.15, or 1.7 percent, to $67.41 per barrel, and West Texas Intermediate for May, which expires on Tuesday, was up $1.24, or 2 percent, at $64.32.

The sudden pessimism of traders was voiced by John Kilduff, founding partner at Again Capital, who said, "Either some nuclear deal is agreed or the U.S. tries to drive Iran's oil flows to zero, and it's increasingly looking like a zero-flow scenario."

As ever, Trump's tariffs influenced trading, and the International Monetary Fund on Tuesday slashed its economic outlook for this year, citing tariffs at 100-year highs and causing rising trade tensions between Washington and Beijing.

Also affecting trading – and supporting prices – was an announcement from Trump that he and Israel prime minister Benjamin Netanyahu spoke on Tuesday and are aligned on trade and their approach to Iran.

But despite the hand-wringing over Trump's tariffs and concerns about plummeting demand as a result, Bloomberg on Tuesday pointed out that "market gauges have been pointing to a stronger near-term market; the closest WTI futures contract is trading at its biggest premium to the next month since February, signaling tighter supply and demand balances."

Martijn Rats, global oil strategist at Morgan Stanley, agreed that, "Near-term, I would expect that the biggest wave of selling is behind us."

However, he added, "As we go through the summer, seasonal demand does support things a little bit, but then in the second half we will probably have another period of downward pressure."

UBS analyst Giovanni Staunovo capped Tuesday's analytical input by stating, "A potential nuclear agreement could shift the supply outlook meaningfully; still, the price drop on Monday looked a bit excessive, considering oil demand remains solid."