Iran is exploring a nuclear deal with the U.S. that focuses on a regional uranium enrichment group. For this deal to work, the enrichment must take place inside Iran. Experts urge caution about being too hopeful regarding the deal’s potential. If the agreement succeeds, it may boost Iranian oil supply, negatively affecting oil prices.

Uranium Enrichment Conditions

The latest draft of the proposed nuclear deal indicates that Tehran might agree to international oversight of its uranium enrichment, as long as the activities occur in Iran. This demand ensures that Iran maintains control, a longstanding issue in past negotiations. Analysts remain cautious, as previous similar attempts have faltered at crucial points. If discussions progress and a framework becomes clearer, energy markets could start to anticipate longer-term scenarios. This could mean more Iranian crude entering the market, putting downward pressure on benchmark oil prices, even before actual shipments begin. This situation ties supply directly to geopolitical factors, impacting more than just the energy sector. Last week, Mehdi outlined Tehran’s expectations, emphasizing a desire for control and economic relief. The main motivation for Iran is financial. Lifting some current restrictions could unlock new revenue streams, leading to increased supply that markets hadn’t considered just a month ago. We have started to see some forward contracts reflecting this potential. There’s been a rise in put option activity on Brent for later this year, along with a decrease in implied volatility over the past few sessions. This kind of activity often occurs ahead of confirmation events. Traders are not betting on immediate changes but are positioning for a medium-term shift that would lower price expectations through winter.

Negotiation Dynamics

Jafari, a key negotiator in initial discussions, spoke mid-week about possible breakthroughs but mentioned several conditions. His comments were purposeful, indicating groundwork is being carefully laid. This caused a momentary market adjustment, evident in the steepening of the back end of the curve around March contracts. It suggests a slight change in positioning—still not a complete trend reversal, but movement is occurring. Given this context, we need to focus on scenario-based tracking. We should prepare for a softer oil market in early 2025 and keep fewer high-beta energy positions for shorter periods. What made sense before for longer-dated calls in energy-exposed assets now requires more flexible rotations into sectors less affected by headlines. Analysis of options data shows increased hedging interest in commodity-sensitive stocks, particularly with weekly expirations over monthly ones, likely due to greater event risk. This doesn’t indicate a full retreat from the reflation trade, but there are clear signs of caution. Companies that depend on tight spreads in energy markets may need to reconsider margin expectations. With policy and political timelines remaining uncertain, it’s wise to maintain flexible hedging strategies. This may involve using options ladders and calendar spreads to prepare for potential shifts when any official news emerges. We’re already seeing significant volume being directed towards September and November maturities, especially in gasoil and distillates. In this scenario, timing is more crucial than simply having a directional conviction. If a deal gains momentum and barrels return to the market faster than anticipated, volatility might not just persist—it could spike briefly before stabilizing. Being early will not yield the same rewards as in the past if the policy trigger happens mid-cycle. Create your live VT Markets account and start trading now.

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