Oil Rebounds as Iran Calls US Talks "Fake News"

Early Tuesday morning in Asia, oil prices went up more than 1% after Iran's Parliament Speaker Mohammad Baqer Qalibaf flatly denied that any negotiations with the US had taken place since the war started. This went against what President Trump said and made the market scramble to re-price war risk after it had just dropped over 10% in one session.

As the whipsaw shows, the main problem with trading this conflict is that the most important factor—whether diplomacy is real or just a show—is being argued over in real time by the two sides that are meant to be conducting it.

Monday's 10% Collapse, and Why It's Already Unraveling

The drop in prices on Monday was shocking in every way. Oil prices were getting close to $120 a barrel because Iran effectively blocked the Strait of Hormuz, which is where about 20% of the world's oil supply goes through. This blockade stayed in place for four weeks straight of fighting.

Then Trump told reporters that his representatives had "very good and productive" talks with top Iranian officials who were not named. He also said that he was delaying his threat to attack Tehran's power grid by five days. The markets saw a polite start, and crude fell more than 10%.

That made sense wasn't so clear by Tuesday morning. Saying on social media that "no negotiations have been held with the US," Qalibaf called the reports "fake news used to manipulate financial and oil markets" and said they were an attempt by the US to get out of what he called the "quagmire" that Washington and Israel are stuck in. He also said that the Iranian people want the attackers to be punished completely, which is not a phrase that can be used to save face in international negotiations.

Who Is Actually Talking to Whom

Most of the time, the truth lies somewhere in the middle of these two views. According to Reuters, there have been no direct talks between the U.S. and Iran. However, Egypt, Pakistan, and Gulf states are acting as go-betweens and passing messages back and forth. Separately, Iran's foreign ministry was seen discussing plans to ease tensions, which suggests that there is activity going on behind the scenes even though the public attitude is still very hostile.

A source in Israel told Axios that U.S. envoys Steve Witkoff and Jared Kushner had talked to Qalibaf directly. However, that same source now says that no talks took place. Trump wouldn't say the name of his Iranian contact because he didn't want to risk killing that person. That fact alone suggests that there is more going on than nothing in terms of diplomacy, even if neither side can say so in public without risking their political future.

The Market Implication: Volatility Has No Floor

The backwardation from Monday to Tuesday shows why investing in oil right now is very risky. One untrue thing Trump said took away 10% of the value of crude oil in hours. In the same trading cycle, Iran's rejection brought back a small part of that amount. The market isn't trading facts; it's trading how likely people think it is that there will be a Hormuz resolution, which is calculated again and again for each news story.

The fundamental problem with the supply hasn't changed. The Strait is still pretty much closed. The Middle East still doesn't have enough oil to fill the 7–10 million barrel per day production gap. Goldman Sachs keeps its Brent average of $110 for March and April, with a road to $150 in case of a long closure. That math hasn't changed; only the political noise around it has.

Oil markets will stay really unpredictable until we see real progress from talks between the two sides or things get worse and affect Irans energy systems. The price of oil went up to $120 recently. Then dropped on Monday so that is the range we are looking at for now. 

When Washington or Tehran says something about the talks traders should be careful. Not believe it right away until someone else confirms it or we see things actually getting better on the ground. Oil markets will keep changing because of what people're saying in the news and this will keep happening until we see real proof of progress or things get worse, with Irans energy systems.