What Iran Deal Progress Actually Means for Oil and Market Structure

Crude dropped 2.4% early Monday on news that Trump's going to start guiding ships through the Strait of Hormuz and that Iran talks are moving forward. Brent hit $105.55 before bouncing back a bit. The dollar weakened. Equity futures pushed higher then pulled back.

That's the surface read. What matters for traders is what the structure looks like now that geopolitical risk might be coming off the table, and whether the month-long rally in equities can hold if oil actually normalizes.

Trump said the US will start guiding non-conflict ships through the Strait of Hormuz starting Monday. He also called the Iran talks "very positive" after Washington responded to Tehran's latest proposal. Iran's plan reportedly calls for a complete end to hostilities within 30 days, US forces withdrawing from near Iran, sanctions lifted, and reparations paid. That's a pretty big ask, and the details will matter more than the headlines.

Rodrigo Catril at National Australia Bank basically said what everyone's thinking: "We have been here before." Positive signals are nice, but this could unwind pretty quickly if negotiations stall or if either side changes course.

The real question for traders isn't whether a deal happens. It's how markets respond to the possibility of one, and what that does to the supply picture for oil.

Oil above $100 has been the background noise for this entire rally. The S&P 500 just closed its best month since 2020, and about 81% of companies beat Q1 earnings estimates. Emerging market equities hit a record high in late April. Asian stocks almost fully recovered their war-driven losses.

That happened with oil elevated and the Fed signaling higher-for-longer rates because of energy costs. If oil comes back down and stays down, that removes a constraint. Energy input costs drop. Inflation pressures ease. The macro picture improves. That's the bullish case for equities extending this run.

The bearish case is that the rally already priced in a deal before one actually exists, and if talks fall apart, crude spikes back up and takes risk sentiment with it. Joe Gilbert at Integrity Asset Management thinks the market's being too patient with uncertainty and focusing on "the other side of the conflict, which may be too optimistic." He thinks the economic damage from the war will show up more clearly over the next month.

The rally held through a war, oil over $100, and a Fed that's not cutting rates anytime soon. That tells you sentiment is strong and corporate earnings are holding up. High-yield credit spreads are near multi-year tights. Retail traders are piling into prediction markets and zero-day options. Risk appetite is high.

But that also means there's not a lot of skepticism priced in. If you're looking at this from a market structure perspective, the setup feels stretched. Five consecutive weeks of gains. No real pullback. Limited disagreement among market participants about where this is going.

When everyone's leaning the same way and the catalyst (Iran deal progress) is still uncertain, that's when you start watching for distribution patterns. Not predicting a reversal, just noting that the conditions are there for one if sentiment shifts.

Iran warned Monday that any US interference in the Strait of Hormuz would be considered a ceasefire breach. That's the kind of statement that can move markets fast if it escalates. The proposal Tehran put forward is also pretty maximalist: full withdrawal of US forces, maritime blockade lifted, sanctions removed, reparations paid. The US responding positively is one thing. Actually agreeing to all of that is another.

There's also the Fed issue. If oil drops and inflation pressures ease, that opens the door for rate cuts later this year. But if oil stays elevated or spikes again, the Fed's stuck, and equities lose a potential tailwind. The market's been willing to ignore that risk so far, but it doesn't stay ignored forever.

And then there's the question of whether corporate earnings can keep beating estimates if energy costs stay high or if consumer spending weakens. The economic damage Gilbert mentioned doesn't show up immediately. It builds over time. Next month's data might look different than this month's.

The dollar weakened against most major pairs Monday, which is consistent with risk-on sentiment. The yen strengthened slightly to 156.84 per dollar after Japan reportedly intervened Thursday to support the currency. That intervention matters because if the yen keeps weakening, Japan might step in again, and that creates volatility in currency pairs that spills over into other markets.

If the Iran deal actually happens and oil normalizes, the dollar probably weakens further as safe-haven demand drops. That's generally supportive for emerging market equities and commodities priced in dollars. But it also depends on what the Fed does. If inflation stays elevated because of other factors, the dollar could strengthen again even if oil drops.

The key levels right now are oil and equity support zones. If Brent holds above $100 and doesn't retest lower levels, that suggests the market thinks the deal talk is noise and supply risk is still real. If it breaks below $100 and stays there, that's a different read. It means traders believe shipping will resume and supply will normalize.

For equities, the S&P 500 just hit new highs, so there's no immediate resistance overhead. Support is the question. The first meaningful pullback will show whether buyers are willing to defend this level or if the rally was front-running a deal that might not happen.

The other thing to watch is credit spreads. High-yield spreads near multi-year tights mean risk appetite is maxed out. If spreads start widening, that's an early signal that sentiment is shifting before equities roll over.

And obviously, any headlines out of Iran or the Strait of Hormuz move markets fast. The difference between "talks are progressing" and "ceasefire breach" is the difference between risk-on and risk-off in the same trading session.

This isn't a prediction about where price goes. It's a map of what the structure looks like and what conditions would need to change for the setup to break down. The market's betting on a deal. If it gets one, energy costs drop and equities probably extend. If it doesn't, we retest support pretty quickly.