Oil is moving higher because traders are adding back a supply risk premium after U.S. President Donald Trump rejected Iran’s peace response as ‘totally unacceptable’, Naeem Aslam, CIO at Zaye Capital Markets, stated in a market analysis sent to Rigzone today.
In the analysis, Aslam highlighted that Brent crude was trading around $104.50 per barrel, after rising more than three percent.
“The Strait of Hormuz remains the key pressure point for global energy markets, and any threat to shipping flows can quickly raise freight costs, insurance costs, and fear of tighter available crude supply,” Aslam said in the analysis.
“Earlier optimism around a peace path had pushed prices lower, but the latest rejection has reversed part of that move and reminded traders that oil is still being priced more by geopolitical risk than by normal demand trends,” he added.
Aslam warned in the analysis that Trump’s comments “are directly impacting the oil ecosystem because they reduce confidence that the conflict can move quickly toward a stable settlement”.
“When peace talks look stronger, oil usually gives back risk premium because traders expect supply routes to normalize. When talks weaken, prices rise because buyers worry about disrupted barrels, tanker delays, and higher costs across fuel, shipping, airlines, and manufacturing,” Aslam highlighted.
“That is why oil can move sharply even before physical supply data changes,” he continued.
Aslam pointed out in the analysis that “the latest reports show crude has moved between roughly $86 and $126 over the past month, proving that the market is still highly sensitive to every headline around Iran, sanctions, naval movement, and Hormuz access”.
The CIO also noted in the analysis that yesterday’s economic data is shaping oil sentiment through the demand side.
“Nonfarm payrolls rose by 115,000, beating the 65,000 estimate, unemployment held at 4.3 percent, average hourly earnings rose 0.2 percent month over month, and annual wage growth stood at 3.6 percent,” he highlighted.
“These figures support oil because they show the economy is still strong enough to sustain driving, freight, air travel, logistics, and industrial fuel demand,” he added.
Aslam warned, however, that the consumer side is weaker.
“Preliminary consumer sentiment fell to 48.2 from 49.8, while one-year inflation expectations stayed elevated at 4.5 percent and longer-run expectations stood at 3.4 percent,” he said.
“That creates a split signal for crude: labor strength supports demand, but weak sentiment and high inflation expectations warn that expensive fuel could eventually slow consumption,” he added.
Aslam went on to state in the analysis that today’s economic calendar is quiet, adding that oil prices are likely to be driven more by geopolitical headlines, the dollar, tanker movement, and supply guidance than by fresh macro data.
“For Zaye Capital Markets, the key level is whether Brent can hold above $100,” Aslam noted.
“If Iran tension worsens, prices may stay supported, but if peace talks improve or demand concerns deepen, the risk premium could unwind quickly,” he added.
In a statement posted on his Truth Social account on May 10, Trump said, “I have just read the response from Iran’s so-called ‘Representatives’”.
“I don’t like it – TOTALLY UNACCEPTABLE!,” he added.
A statement posted on the official X account of the Islamic Republic of Iran Embassy in Yerevan, Armenia, which was responding to Trump’s Truth Social post, stated, “in Iran, decisions are not made based on who likes it or who dislikes it, decisions are made based on NATIONAL INTERESTS AND DIGNITY”.
Largest Supply Disruption on Record
In a report sent to Rigzone on Friday by Natasha Kaneva, J.P. Morgan’s head of global commodities strategy, J.P. Morgan analysts, including Kaneva, asked, “how should we interpret Brent averaging only about $100 in the two months since the war began despite the largest supply disruption on record?”.
Rather than signaling complacency, the market may be acknowledging a harsher reality, the analysts said in the report, responding to the question.
“A shock of this magnitude cannot be absorbed through the crude market alone,” they warned.
“There is simply not enough elasticity on the crude side of the system,” they added.
“Instead, the adjustment is increasingly being pushed down the barrel – out of crude and into refined products,” they continued.
The J.P. Morgan analysts highlighted that crude shortages have already forced refiners across Asia and Europe to cut runs by 2.1 million barrels per day in March and 3.8 million barrels per day in April.
“At the same time, the market has also lost an estimated 4.7 million barrels per day of refined product exports from the Middle East itself,” they highlighted.
“The result is tightening not only in crude balances, but increasingly in the availability of usable fuels like gasoline, diesel, jet fuel, LPG and naphtha,” they added.
This shift is already visible in prices, the analysts pointed out.
“From January through April, crude prices have risen by roughly 40 percent, while refined product prices in Asia – the region hit hardest so far – have increased by 60 percent to 120 percent,” they noted.
“Put differently, products are repricing 1.5x to 3x faster than crude and, to date, have shouldered twice the adjustment. This matters because consumers don’t buy crude oil – they buy fuels,” they continued.
The J.P. Morgan analysts went on to ask in the report, “can crude remain broadly stable around current levels while refined product prices continue to rise?”.
“The answer appears to be yes, and that may well become the dominant adjustment mechanism,” the analysts stated, responding to this question.
“If refinery runs remain constrained by insufficient crude availability, the bottleneck shifts downstream. In that case, refined product prices – not another sharp leg higher in crude – become the primary transmission channel for demand destruction,” they added.
“In that scenario, crude could plausibly stabilize around $100 even as product cracks widen sharply. The next phase of the shock then may look less like a classic crude spike and more like a refining and end-user fuel crunch,” they warned.
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