Why has the oil price has not gone higher in the wake of the U.S.-Iran conflict? Will oil price reactions to geopolitical concerns be more muted going forward?
These were the questions Rigzone posed to oil and gas analysts from Standard Chartered, Wood Mackenzie, and the American Enterprise Institute (AEI).
Responding to Rigzone, Standard Chartered Bank Energy Research Head Emily Ashford said, “there have been so many levers pulled since the start of the conflict that have acted together to contain massive price escalation”.
Ashford warned, however, that these measures may only have a temporary effect.
“Early in the conflict, when physical premiums rallied strongly, it had been expected that futures would eventually trade up to the physical,” Ashford told Rigzone.
“Instead, we have seen the physical trading down to the futures,” Ashford added.
“It could be that buyers were hopeful the conflict would be resolved rapidly, at least in terms of the Strait of Hormuz blockades, and have been dissuaded from purchasing cargoes at extremely elevated prices,” the analyst said.
“High volatility and wild price swings have increased the risk of a VaR [Value at Risk] shock. Deferring purchases in the near-term has allowed prices to soften on strategic reserve and inventory drawdowns, reduced refinery run rates and alternative supply sources,” Ashford added.
The Standard Chartered Bank Energy Research Head warned, however, that Standard Chartered expects this downwards adjustment to be temporary and said physical prices should rise once more when purchases can be deferred no longer, “perhaps finally pulling futures up towards them”.
Alan Gelder – Downstream Global SME, SVP Refining, Chemicals & Oil Markets, Commodities Research at Wood Mackenzie – told Rigzone that the oil price is currently more sentiment driven, “focusing on the assumption of resumed transit flows through the Strait of Hormuz within the coming weeks”.
“The large premium of physical barrels over paper has weakened over recent weeks as freight rates have fallen as vessels have re-positioned to move Atlantic Basin volumes to the East,” Gelder said.
“Also, the prevailing ceasefire has stopped further damage to oil infrastructure, and the conflict is dropping off the front of the news,” Gelder added.
“Onshore crude oil inventories in market clearing locations (such as the U.S.) are yet to drop sharply, buffered by a sharp fall in oil loaded on vessels globally, including so-called ‘shadow fleet’ sanctioned oil and tankers,” the Wood Mackenzie SVP continued.
Gelder also highlighted to Rigzone that additional supplies are becoming available from the release of strategic stocks, but added that, in the case of the U.S., the release timing and rate is lagging the lost production.
“This implies oil price reactions to geopolitical concerns should be more muted in future, as it has provided evidence that IEA/OECD stockholding is able to mitigate for some months a material disruption to supply,” Gelder said.
“However, it is worth noting that pre-conflict, the expectation for oil prices during Q1 2026 was at $60 per barrel or lower for Brent, with recent Dated Brent being over $110 per barrel (and creeping up in between U.S. announcement of an imminent deal),” he added.
“With the oil on water buffer now largely consumed, the longer the Strait of Hormuz remains closed, the stronger the draw of onshore inventories, which will drive prices higher as for a market balance to be achieved,” he warned.
“Oil demand needs to fall towards the supply loss of around 10 million barrels per day, suggesting much higher prices,” Gelder went on to state.
Responding to Rigzone, Benjamin Zycher, a Senior Fellow at the AEI, said the market “believes that the war will end at some point, the Strait will reopen, with some continuing risk, and prices will decline”.
“Because oil is intertemporally substitutable, it can be consumed in the current time period or a future one, future expected prices are reflected in current ones,” he highlighted.
Zycher went on to tell Rigzone that there is no reason to believe that oil price reactions to geopolitical concerns will be smaller going forward, adding that this “depends on the magnitude of the concerns”.
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