Brent: How Are US-Iran Talks Driving the Pullback? – ING

Growing hopes of US-Iran talks ahead of the US midterm elections have weighed sharply on Brent, ING strategists Warren Patterson and Ewa Manthey note, with ICE Brent losing 7.6% to slip back below $105/bbl. In their assessment, clear signs of progress towards peace would point to further price declines, as a substantial risk premium remains priced in despite robust oil flows from the Persian Gulf.

Could de-escalation erode the risk premium?

"Energy markets saw an aggressive pullback yesterday, with ICE Brent settling 7.6% lower and prices falling back below $105/bbl. The move comes amid new hopes for potential US-Iran talks. While we’ve seen this before with nothing materialising, positive signals appear to be coming from both the US and Iran."

"President Trump responded “no” to a question on whether he would strike Iran following the midterm elections. Iran’s president said that the government has been given more authority from the country’s supreme leader to negotiate with the US."

"Despite these positive signals, it’s probably too early to think escalation risks have passed. On Monday, the US carried out strikes on Iran’s Qeshm Island, reportedly in response to Iran firing at a US aircraft."

"What is clear, though, is that strong signals of progress in peace talks would mean more downside for prices. The market still has a large risk premium baked in, particularly given the strong oil flows from the Persian Gulf."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)