In an analysis posted on the Saxo Bank website on Wednesday, Ole Hansen, Saxo Bank Head of Commodity Research, outlined “why oil’s war premium is unwinding again”.
Hansen highlighted in this analysis that oil prices had fallen “sharply” this week “as the market increasingly senses that both Washington and Tehran are looking for an exit ramp from a conflict that has inflicted a heavy economic cost on both sides”.
“Brent crude trades near $86 per barrel, extending its three-day decline to around 8.7 percent, while WTI trades back below $80 after trading above $87 last week,” he pointed out.
Hansen noted in the analysis that the change in sentiment has been swift.
“Only a week ago, markets were focused on renewed tension, severely restricted shipping through the Strait of Hormuz, and Washington’s promise of an ‘economic onslaught’ against Iran,” he said.
“Today, the focus has shifted towards diplomacy, potential maritime corridors, and signs that neither side currently appears eager to return to full-scale military confrontation,” he added.
“The result is a rapid unwinding of part of the geopolitical risk premium embedded in crude prices,” he continued.
Hansen warned, however, that the physical energy market remains far from normal, “suggesting that the market is trading the prospect of improving supply conditions well before those improvements have actually materialized”.
Talks, De-escalation
In the analysis, Hansen outlined that Iran and Oman have been discussing an interim framework aimed at resuming shipping through the Strait of Hormuz, including the establishment of a temporary joint navigational corridor and a project to clear mines from the waterway.
“Importantly, such an arrangement would not require Washington and Tehran to immediately resolve the much larger disagreements surrounding sanctions, Iran’s nuclear program, and regional security,” Hansen said.
“Instead, it could provide a practical first step towards reducing the economic damage while broader negotiations continue,” he added.
Other developments also point towards de-escalation, according to the Saxo Bank representative.
“The U.S. has reportedly started returning diplomatic personnel to several Middle Eastern posts that were evacuated or downsized following the outbreak of war,” he noted.
“The phased return includes missions in countries such as Saudi Arabia, Iraq, Israel, and Lebanon, with other Gulf posts also expected to increase staffing. While hardly proof that the conflict is over, the move suggests Washington currently assesses the risk of renewed large-scale military escalation to have diminished,” he added.
Hansen also stated that Washington’s much-anticipated expansion of sanctions against Iran has so far proved less aggressive than feared.
“The Treasury sanctioned close to 60 Iran-linked entities, individuals, and vessels, and widened the range of activities potentially exposed to secondary sanctions,” he pointed out.
“However, it stopped short of immediately imposing significant penalties on other countries continuing to trade with Iran and, importantly, did not target major Chinese financial institutions suspected of facilitating Iranian oil trade,” he added.
Hansen warned that China, which he highlighted is Iran’s largest oil customer, “has responded defiantly, arguing that its relationship with Tehran should not be disrupted and warning that it will take measures to protect its interests”.
“The U.S. may yet escalate its economic campaign, but for now its measured approach reduces the immediate risk of a sanctions confrontation with Beijing that could further disrupt global energy flows,” he said.
Hansen went on to state that, after six months of conflict, the incentives for finding an exit are becoming increasingly clear.
“Iran desperately needs economic relief and improved access to its oil export markets. Washington, meanwhile, needs energy normalization after months of elevated fuel prices, SPR releases, and disruptions across the Gulf,” he said.
Sell-Off Speed, Price Direction
Hansen noted in the analysis that the speed of this week’s sell-off is particularly notable because there has been little evidence yet of a meaningful recovery in physical flows.
“Ship traffic through the Strait of Hormuz remains severely depressed,” he said.
“Preliminary Kpler data cited by Reuters showed just five commodity vessels crossing on August 25, compared with a ten-day average of around 15. Before the conflict, the Strait handled roughly one-fifth of globally traded oil and LNG,” he added.
“In other words, crude prices are falling not because large volumes of disrupted oil have suddenly returned to the market, but because traders are assigning a greater probability to their return in the coming weeks,” he continued.
“The market has moved from pricing a high probability of prolonged disruption and renewed escalation towards pricing partial reopening, negotiated shipping arrangements, and a lower risk of renewed military confrontation,” he said.
Hansen warned that this leaves the market vulnerable in both directions.
“A credible agreement that rapidly restores Hormuz traffic could remove another layer of geopolitical premium. Conversely, a breakdown in negotiations could force traders to rebuild risk premium almost as quickly as it has disappeared,” he stated.
“The immediate downside risk for oil is clear: successful negotiations followed by a sustained reopening of Hormuz could release trapped Gulf barrels, ease shipping costs, and further reduce the geopolitical premium,” he added.
“Back in June, when the Strait opened for a few weeks, Brent crude slumped all the way to $70 per barrel,” he pointed out.
The opposite risk is equally important, according to Hansen, who warned that the market may already be pricing the first stages of a peace dividend before any meaningful peace dividend has actually arrived.
“Looking again at the most recent developments, the failure to secure a deal following the June reopening drove renewed hostility and a subsequent $30 rebound in Brent,” he said.
“Based on these recent developments, the only thing traders seem to be guaranteed is continued price volatility,” he warned.
“It remains to be seen not whether tensions have eased – they clearly have – but how much de-escalation is already reflected in the price,” he added.
“For now, the market appears willing to believe that Washington and Tehran have finally found sufficient reason to search for an exit ramp. The next test will be whether diplomacy can turn that expectation into ships actually moving through Hormuz again,” he stated.
Current Sell-Down
Ole R. Hvalbye, Partner, Head of Oil Service Equity Research at ABG Sundal Collier, told Rigzone on Wednesday that oil is dropping today because some of the geopolitical risk premium is coming out of the price.
“The current sell-down is mostly driven by Iran and Oman which are back at the table talking about a temporary maritime corridor through the Strait of Hormuz, including mine clearance,” he said, outlining that there is “some optimism” and that “traders are pricing in an increased chance the Strait flow normalizes”.
He also pointed out that the U.S. is sending some diplomatic staff, who were previously evacuated, back into the region, “hence Washington might see lower near-term escalation risk”.
Hvalbye went on to flag “some effect of … U.S. data”, noting that the American Petroleum Institute (API) reported a 4.2 million barrel crude build last week vs an expected build of 0.6 million barrels. He also noted that “actual Hormuz flow is probably running ahead of what we see”, adding that “the market may be structurally underestimating how much … [oil] is already moving”, which he said “is itself a bearish input on top of today’s headlines”.
“We’ve seen this pattern all summer,” Hvalbye told Rigzone.
“Price rallies when Hormuz talks stall, sells off when they progress. Volatility should stay elevated until there’s an actual functioning corridor, not just talks,” he warned.
Concern Around the Strait
Naeem Aslam, CIO at Zaye Capital Markets, highlighted that Brent and WTI were down today and yesterday in a market analysis sent to Rigzone on Wednesday.
“The immediate driver is easing concern around the Strait of Hormuz, where renewed Iran-Oman discussions over shipping and mine-clearing have reduced part of the geopolitical premium built into crude,” he said in the analysis.
“At Zaye Capital Markets, the market is currently balancing lower disruption risk against still-fragile supply conditions,” he added.
“U.S. crude inventories reportedly rose by 4.2 million barrels versus expectations for only a 600,000-barrel increase, adding another near-term bearish factor by signaling more available supply,” Aslam pointed out.
In this analysis, Aslam outlined that U.S. President Donald Trump’s recent comments mattered “mainly through the geopolitical and trade channels rather than through direct oil-market policy”.
“Continued sanctions pressure on Iran keeps the risk of renewed supply disruption alive, meaning any deterioration in Middle East tensions could quickly reverse recent crude weakness,” he said.
“His harder stance toward Canada creates a different transmission mechanism: threatened 50 percent tariffs on Canadian vehicles, trucks, and steel increase inflation and growth uncertainty across North America, which can influence the dollar, interest-rate expectations and future fuel demand,” he warned.
“If trade pressure slows industrial activity and transport demand, that would weigh on oil. If sanctions or geopolitical tensions restrict supply faster than demand weakens, crude could rebound sharply despite softer macroeconomic conditions,” he continued.
Aslam went on to state that yesterday’s economic data leaned slightly bearish for oil demand.
“New-home sales fell 10.5 percent month over month to a 607,000 annualized pace and the median new-home price declined 2.3 percent to $393,800. Consumer confidence fell to 89.4 from 90.2, with expectations dropping to 68.2 even as the present-situation index improved to 121.2,” he said.
“Regional services activity contracted to -10.6, new orders fell to -10.1 and employment slowed to +2.1, while prices paid remained elevated at 29.2. Manufacturing was steadier at +4, with shipments at +11 and new orders at +3, although employment slipped to -2,” he added.
“Taken together, those numbers point to softer demand momentum rather than collapse, which limits upside for crude unless the supply side tightens again,” he continued.
Aslam went on to project in the analysis that today’s Core PCE Price Index, preliminary GDP, and preliminary GDP Price Index will be the next major test for oil prices.
“Stronger GDP with contained inflation would support expectations for transport, industrial, and commercial fuel consumption and could stabilize Brent and WTI,” he said.
“Weaker GDP would reinforce demand concerns and likely pressure crude further. A hotter Core PCE or GDP Price Index could strengthen the dollar and lift yields, creating another headwind for oil even if inflation itself remains elevated,” he added.
Aslam also warned that the latest global supply-demand outlook also keeps volatility high.
“Global oil demand is projected to decline by 1.6 million barrels per day in 2026, while supply is projected to fall by 4.3 million barrels per day, leaving the market vulnerable to deficits if Middle East disruptions persist,” he said.
“The key signal is whether weaker demand data or tighter supply dominates first; that balance will decide whether oil remains under pressure or quickly rebuilds its geopolitical premium,” Aslam added.
Rigzone has contacted the White House, the Iranian Foreign Ministry, and the Foreign Ministry of Oman for comment on Hansen, Hvalbye, and Aslam’s statements. Rigzone has also contacted the International Press Center of China’s Ministry of Foreign Affairs for comment on Hansen’s statement. At the time of writing, none of the above have responded to Rigzone.
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