Risk level: Yellow - Elevated

RED: Severe (+/- 4%) ORANGE: High (+/- 2%)  YELLOW: Elevated (+/- 1%)  BLUE: Guarded (+/- ½%)

THE BOOSTER SHOT

•             Brent crude oil prices may be tracking toward a new floor this week

•             Wintershall's distaste for political games may be the European tell on JCPOA

•             With the ECB wary of "vulnerabilities," Trump's shifting position may be testing market patience

Iran and the remaining members of the JCPOA agreed Friday to try to salvage a deal left damaged by President Trump's long-awaited pullout in early May, with Tehran lobbying for some form of arrangement by the end of this month. The dilution of an agreement that gave Iran freedom to export more of its oil helped establish Brent crude oil at $80 per barrel. We saw $80 as a ceiling and were validated Friday when the global benchmark settled at $76.16. We expected a week of moderate movements, with a Yellow alert (+/- 1 percent for Brent). The OPEC+ consideration to put more oil on the market in the second half of the year pushed the benchmark lower than anybody could've anticipated, however. In the end, Brent was down 2.9 percent for the week.

The U.S. unilateral departure from the JCPOA may be indicative of a realigning of the geopolitical poles, adding uncertainty to an already unstable market. With Washington's new penchant for unclear and changing paths, from trade to treaties, the European Central Bank warned that "vulnerabilities are building up in global financial markets." New demarcations from Washington, meanwhile, are changing the global map of international order. Wary of the position of the Trump administration, parties remaining in the Iranian nuclear deal - Britain, China, France, Germany and Russia - held meetings of their own to try to salvage a deal that has implications not only for global security, but oil market stability as well.

"We expect the (economic) package to be given to us by the end of May," Iranian Supreme Leader Ayatollah Ali Khamenei said.

Meanwhile, after finding that placating Trump was ineffective, French President Emmanuel Macron has turned to Russia, saying outreach would keep the Kremlin at the European table. German Chancellor Angela Merkel, meanwhile, has stressed the strategic importance of an amicable relationship with Russia. That European pivot could be indicative of a lingering distrust of U.S. policies in the region. While the United States has tried its hand at using energy for political leverage, German energy company Wintershall – which has partnerships with Gazprom – has signalled it was not in the business of playing geopolitical games. While keeping the JCPOA will be difficult for Europe, and while it's a tough choice to make, there may be an appetite for a strict business relationship with Iran.

Without Iran, and with chronic shortfalls from Venezuela, the global oil market is moving toward a deficit. It was left then to Russia's energy minister, Alexander Novak, to take the podium at the St. Petersburg International Economic Forum to lance the bull with suggestions of more oil on the market in the second half of the year to offset the potential for further declines.

The U.S. influence on the market might not be all it's cracked up to be. Testifying before a House committee on foreign affairs last week, Samantha Gross of The Brookings Institution said Trump's vision of energy dominance is misleading. While important to energy security, the United States lacks the ability to move markets directly, she said. That could be a telling statement on influence in general, especially in Europe. U.S. Secretary of State Mike Pompeo has even conceded there was a "huge market" in Iran. While the headlines next week may be dominated by Trump's on-again-off-again love affair with North Korea, it may be the OPEC+ positioning ahead of June meetings and the European bid for autonomy that establishes the base narrative for oil markets.

Brent crude oil is coming off its first weekly loss in a month. Monday trading may be lighter because of the U.S. holiday, but expect some influence from a Norwegian survey of quarterly investments in the oil industry and a rig count hangover. With Trump focused on putting his stamp on North Korean diplomacy, it could the European initiatives driving the short-term agenda on oil.

We expect Brent prices to move lower in search of a new floor this coming week and stick with a Yellow alert as charts establish a new forward slope.

Risk level: Yellow - Elevated

RED: Severe (+/- 4%) ORANGE: High (+/- 2%)  YELLOW: Elevated (+/- 1%)  BLUE: Guarded (+/- ½%)

The elections in Venezuela and the European response to the Iranian nuclear agreement may be running the narrative in the oil market this coming week. Brent crude oil flirted with $80 per barrel in a week that saw the geopolitical risk factor surprise even OPEC. We expected a week of moderation, but were surprised by the market's response to Israeli military action against Palestinians protesting the U.S. embassy move to Jerusalem. Discounting the subsequent 1.4 percent jump in Brent on Monday, however, the market barely moved with the price of oil dipping to $78.51 by the end of the week. Washington's reaction to the potential for another six-year term for Nicolas Maduro in Venezuela and the battle of wills over the JCPOA could be supportive to crude this coming week, but $80 may stay as the ceiling.

U.S. Vice President Mike Pence joined the presidents of 15 other countries in April to sign a declaration warning Caracas it would not view the election process as credible unless it's free and fair. While Maduro's term doesn't end until January, his administration was able to put the opposition on its heels by moving the elections forward to Sunday.

So far, the process so far has lacked the legitimacy expected from Western powers. On Friday, the Trump administration targeted National Assembly Speaker Diosdado Cabello Rondon and three others with sanctions for alleged drug trafficking, money laundering and embezzlement. U.S. Treasury Secretary Steven Mnuchin said the sanctions reflect a commitment to hold Venezuelan authorities accountable for violating the trust of their people.

"These designations reflect the commitment of the United States to use every available diplomatic and economic tool to hold accountable corrupt officials and support the Venezuelan people’s efforts to restore their democracy," a Treasury Department statement read.

That commitment comes as the OPEC member teeters on economic collapse and the isolation for Caracas becomes even more profound. Reuters reported May 15 that state-run oil company PDVSA bought $440 million worth of foreign crude oil to send to Cuba, one of its few remaining allies, to shore up support. That leaves Caracas in further debt, but its debt well spent on political favor in the region. Nevertheless, Venezuela's own production is at a historic low and further pressure from Sunday's vote will add to a downturn that's been supportive of crude oil prices for more than a year. We expect additional support to show up in trading on Monday.

Recent price trajectory has been driven by lingering uncertainty over the fate of Iranian oil barrels. The United States stands as the only entity not committed to the 2015 agreement that gives Tehran relief from sanctions, including oil-related restrictions, in exchange for Iranian promises to scale back a nuclear program. The Trump administration's decision to walk away has widespread economic consequences in an interdependent world. By Friday, barely a week after Washington left the agreement, European powers said they would use blocking statute to protect their companies, even those doing business in the Iranian oil sector. For the Central Bank of Iran, whose leader was the target of U.S. sanctions, Europe said it was encouraging bank transfers for support. That shows Europe is standing up to a Trump administration in a way to reflects fractures in a long-standing friendship.

"Looking at latest decisions of @realDonaldTrump someone could even think: with friends like that who needs enemies," said European Council President Donald Tusk.

Robert Jervis, a professor of international politics at Columbia University, suggested more than a decade ago that a U.S.-European break could upset the global order. Tired of the volatility of President Trump, Europe seems to be charting an independent path. That volatility leads to uncertainty in issues like trade, an issue that has obvious and direct market implications.

An OPEC official said May 16 that crude oil prices are "high just because of the tensions" and we agree. Already, the IEA and others are warning that the price of oil is approaching the point of creating economic problems. We still, however, see $80 per barrel in play for Brent because of the dual strains from Iran and Venezuela. On Monday, Mike Pompeo will discuss "the way forward" on Iran, his first major foreign policy address as U.S. secretary of state. We're issuing a Yellow alert this week, expecting crude oil prices to move by about 1 percent for the week.

Risk level: Blue - Guarded

RED: Severe (+/- 4%) ORANGE: High (+/- 2%)  YELLOW: Elevated (+/- 1%)  BLUE: Guarded (+/- ½%)

 The U.S. decision on the Iranian nuclear deal may eventually be seen as the flame that lit the fuse on the powder keg in the Middle East. With investor nerves tested by geopolitical risk, Brent crude jumped more than 3 percent to make a run at $80 after the May 8 decision from President Trump on the JCPOA, but cooled off in the remaining sessions. We were only slightly aggressive with our Orange alert last week, with crude oil prices rallying 1.25 percent to close Friday at $77.12 per barrel. With Israel launching one of its largest strikes on Syria since the 1973 Arab–Israeli War, we see markets primed to test new levels, albeit rather slowly.

The Israeli military followed Trump's decision to leave the P5+1 agreement with one of its largest strikes on Syria in decades, pounding Iranian military installations near the Damascus airport. In response, Iran's Ayatollah Ahmad Khatami said during Friday prayers that Israel could become sleepless by "the nightmare" of Iranian missiles should it do "anything foolish."

Turning points in history tend to follow conflict break outs among rivals and it's these conflicts that move history in unchartered directions. As we have anticipated, the U.S. decision to leave the Iranian agreement was another sign of hegemonic decline, with its European allies openly wondering about the end of Pax Americana. With Trump staking his legacy on Korean negotiations, Israel is now unleashed to settle its scores. French President Emmanuel Macron is already calling for de-escalation, after finding the U.S. president unfazed by cajoling. And by Friday, it was Iran that resumed the effort to play the responsible actor by saying silence from the international community only encourages Israeli aggression. It seems the U.S. voice is losing its clout. Could isolation diminish U.S. economic influence as well?

The international relations theorist Kenneth Waltz, and others, warned that it's always possible that non-military issues turn into military ones and force may be used to solve them. He also said the use of force signals a breakdown in order. The 1973 Arab–Israeli War brought the two superpowers, the United States and Soviet Union, into a proxy battle in the region and the conflict today bears a striking resemblance to that breakdown in order. Between July 1973 and January 1974, and during the subsequent Arab oil embargo, crude oil prices nearly doubled.  Citing geopolitical tensions and risks from supply disruptions in Iran and Venezuela, the U.S. Energy Information Administration raised its forecast for Brent by $7 per barrel from its April forecast. And that revision was made before Trump's announcement on JCPOA.

The recent escalation in Syria may be a minor tremor amid multipolar muscle-flexing. But trading into a geopolitical storm takes some degree of backbone that may be foolhardy should Iran maneuver through sanctions. Already, there's a 180-day window to work with and European leaders have said they're interested in sanctions busters. U.S. oil, meanwhile, could in theory bridge the Iranian gap, but in recent weeks, potential clients in the Asian economies bracing for a trade war have shown little appetite for light, sweet crude. While talk of a return to $100 barrel oil makes good headlines, we're less bullish, seeing oil range bound while the new phase of geopolitical tensions play out.

We're issuing a Blue alert this week, expecting crude oil prices to move by about a half percent for the week.