Uncertainty Dominates Oil Trading As Trump Considers Military Action Against Iran

Implied volatility continues to climb, says Babin: File Image/Pixabay

Oil on Wednesday extended its gains, albeit minimally, as Iran rejected U.S. president Donald Trump's demand for unconditional surrender in its conflict with Israel, and Washington's next steps remained unclear.

Brent settled up 25 cents at $76.70 per barrel, and West Texas Intermediate settled up 30 cents at $75.14.

Analysts at Ritterbusch and Associates said in a note, "The crude markets remain in a wait-and-see mode with the Israeli/Iran conflict still offering an array of question marks that could either spike Brent to as high as $83/bbl or prompt a plunge back to about the $68 area."

The biggest fear is that an intensification of the hostilities – such as the U.S. joining Israel's bombing campaign – could cause Iran to block oil flows at the Strait of Hormuz and send crude prices over $100 per barrel, according to ING.

For his part, Trump told media with regard to joining Israel, "I may do it, I may not do it; I mean, nobody knows what I'm going to do."

Rebecca Babin, a senior energy trader at CIBC Private Wealth Group, said of Wednesday's trading, "Implied volatility continues to climb, signalling that underlying market anxiety remains elevated — even if that's not fully reflected in price action."

Bloomberg noted, "Bullish options are fetching their biggest premiums in more than a decade, and volatility has surged to a three-year high."

In other oil-related news, also mired in uncertainty was whether or not the U.S. Federal Reserve would cut interest rates twice before the end of this year as it previously indicated.

Fed Chair Jerome Powell said on Wednesday that uncertainty concerning Trump's tariffs could make the median forecast for the cuts far from reality: "Right now it's just a forecast in a very foggy time," he said, adding that "Because the economy is still solid, we can take the time to actually see what's going to happen."

Also on Wednesday, the Energy Information Administration disclosed that U.S. crude inventories fell by a massive 11.5 million barrels during the week ending June 13, bringing commercial stockpiles to 420.9 million barrels – about 10 percent below the five-year average for this time of year.

However, gasoline stocks rose by 200,000 barrels and distillates rose by 500,000 barrels, clouding the issue of whether or not demand is robust