WTI crude oil price forecast after the US-Iran deal and the key risk

The WTI crude oil price retreated sharply, reaching its lowest level since April, after the United States reached a ceasefire agreement with Iran. It sank to $80, down significantly from the year-to-date high of $119. Still, there is a risk that Israel will work to undermine the agreement and draw the US back to kinetic action.

WTI crude oil price retreats after US-Iran deal

The WTI crude oil price slumped after the US and Iran reached an agreement to extend the ceasefire by 60 days and reopen the Strait of Hormuz. This deal was confirmed by the two sides, with Trump being in a celebratory mood. He said:

"The Deal with the Islamic Republic of Iran is now complete. Congratulations to all! I hereby fully authorize the toll-free opening of the Strait of Hormuz, and, simultaneously herewith, authorize the immediate removal of the United States Naval blockade. Ships of the World, start your engines." 

In a call to the New York Times, he said that the Strait of Hormuz would completely reopen without tolls. At the same time, the US will lift its naval blockade against Iran.

The implication of all this is that ships that have been blocked near the strait will swing back to action, a move that will boost oil supply globally, almost instantly. 

At the same time, lifting of US sanctions against Iran will help to boost global oil supply over time. Indeed, the supply will likely be higher than before the war began, when Iran was shipping over 1 million barrels a day. 

Still, there are some potential risks to the deal. For one, Iranians have insisted that the agreement will end the war in all fronts, a statement that includes Lebanon, where Hezbollah and Israel have continued to exchange fire. 

There is a risk that Israel will work to undermine the agreement by launching more attacks against Beirut. When it did that last week, Iran responded by bombing North Israel. A continuation of such attacks will lead to more fighting between Iran and Israel, which will automatically draw the US. 

For Israel, this deal is the worst-case scenario as the war did not achieve anything. Regime change never happened, while Iran maintains its stockpile of highly-enriched uranium. Also, the country will now start making millions of dollars a day, which it can use to fund Hezbollah and Hamas.

Trump had no choice than to reach an agreement with Iran. The US was short of missiles, his approval ratings was sinking, and inflation was the biggest challenge in the country. Restarting the war would have made the situation worse.

Crude oil prices technical analysis

WTI crude oil chart | Source: TradingView

The daily chart shows that the crude oil price has plunged in the past few months. It made a down-gap today, as it reached its lowest level since April.

Oil remains below the 50-day and 200-day Exponential Moving Averages (EMA), while the Relative Strength Index (RSI) moved closer to the oversold level of 30. Other oscillators like the Stochastic and the MACD have continued falling.

Therefore, the most likely scenario is where the WTI prices continue moving downwards, potentially to the next key psychological of $75. A move above $85 will invalidate the bearish outlook.