Tensions Over Greenland Cool, But Oil Surges on Iran Concerns

A follow-up to the framework agreement with the US over Greenland gets positive reviews as markets turn their attention to the US military buildup in the Middle East, threatening Iran. WTI crude has posted its strongest monthly performance in years, surging by more than 11% in January amid supply disruption fears.

The Latest Developments

• US, Greenlandic, and Danish officials say progress has been made on a "framework" agreement over the island's sovereignty, but tensions between the EU and the US remain.
• Market focus is turning to the "massive Armada" Trump has sent to the Middle East to pressure Tehran amid nuclear disarmament negotiations.
• WTI crude oil is on track to surge by over 11% in January, to near $65 per barrel, despite pulling back on Friday amid hawkish Fed nominee speculation.

Greenland Deal Progress, Attention Now on Iran

High-ranking officials from the US, Greenland, and Denmark held talks on Wednesday to advance their respective interests following the "framework deal" reached last week. US President Donald Trump backed away from threats to impose tariffs on eight EU countries over Greenlandic sovereignty, sparking consternation among cross-Atlantic allies. The three parties have expressed their satisfaction with the talks, saying they were "very constructive." However, they were reluctant to provide details on what was discussed or what would change in Greenland's status. Opinion polls in the island nation show an overwhelming majority opposed to US control but also a majority in support of independence from Denmark. The sudden push for Greenland, followed by a rapid de-escalation, has left some analysts wondering if the episode was a distraction from Iran, as US military forces have been building up in the Middle East.

A strike group led by the aircraft carrier USS Abraham Lincoln entered "the Middle East region" earlier this week, augmenting the Fifth Fleet already stationed in Bahrain, across the Persian Gulf from Iran. The Pentagon said the moves are to give the President "options", as Trump ramps up pressure on Tehran after a harsh crackdown on protestors left thousands dead, and nuclear talks stalled. Trump touted his "massive Armada" in a social media post, making a parallel with Venezuela, where the US captured the President in a surprise military action. Sources within the Administration suggest that Trump is looking to create conditions for "regime change", with targeted military strikes against key Iranian officials, whom Washington blames for the recent violence in the country. After threatening military action a couple of weeks ago, Trump said he would delay strikes as Iranian authorities appeared to regain control. The market seems to be betting that the delay will end soon, as investors seek shelter from potential geopolitical fallout.

Crude Posts Best Month in Years on Iran Supply Fears

Concerns that potential US military action against Iran could disrupt oil supplies pushed crude to 4-month highs on Thursday, with Brent rising above $70/bbl. Continued disruptions from cold weather in the US, with another major snowstorm expected over the weekend, also contributed. Crude is just part of other assets that typically get a boost amid geopolitical tensions, with gold rising above $5,500 per ounce, a 10% gain in the first half of the week. Silver broke above $120 an ounce after major gyrations in Monday trading, as investors appear increasingly interested in diversifying away from the dollar and seeking safe havens.

However, they all pulled back on Friday, with the dollar's rally driving the decline. Reports that Trump is considering a hawkish nominee for a key Federal Reserve position boosted the greenback, triggering profit-taking after the month's sharp rally. Despite the pullback, WTI remains on track for its best monthly performance in years, with analysts estimating the war premium at around $4 per barrel.

WTI Oil Faces Double Top Resistance

WTI appears to have left behind a bottom at $55 in early January, soaring to break past the upper VWAP sitting at $64, while trading comfortably above the major descending trendline connecting $78 and $62. If bullish price action is sustained over the next few sessions, light crude could extend to the $70 handle next, which coincides with the last July peak. If a double-top resistance forms and prices pull back amid overextended momentum, the line in the sand below $62 lies at the $60 psychological support level. A breakdown below the middle VWAP would suggest a deeper correction, opening the door to the lower VWAP near $56.

Source: SpreadEx | Light Crude, Daily Chart