Oil Prices Inch Towards ‘Pre-War’ as Supply Risk Eases

Oil Prices Inch Towards ‘Pre-War’ as Supply Risk Eases

Oil prices fell below the $80-per-barrel mark, easing toward the mid-$70s as reports of reduced US-Iran tensions eased fears of supply disruption, while analysts cautioned that a geopolitical risk premium is likely to persist.

Brent crude declined to $76.54 per barrel and West Texas Intermediate (WTI) to $72.83 on Thursday, their lowest levels since the recent conflict period, after reports of a tentative US-Iran understanding, signed electronically, sparked expectations in global markets.

With prices losing the $80 threshold, crude is pressured back toward pre-conflict levels. Market sentiment has improved following reports of a 14-point framework and a 60-day negotiation process aimed at de-escalation, although the arrangement has not been formally confirmed, and key details remain unclear.

After weeks of disruption linked to the conflict between the US/Israel and Iran, considered one of the largest oil supply shocks in history, the emerging agreement has reduced the risk of an immediate supply crisis. However, it has ushered in a new phase of geopolitical uncertainty rather than eliminating it. Analysts say the next two months will show whether the easing is lasting or temporary.

Fereydoun Barkeshli, President of the Vienna Energy Research Group, told Anadolu that uncertainty around implementation remains a key variable for pricing, noting that markets have already shown strong resilience during periods of extreme geopolitical stress.

“I rarely met any oil analysts who didn’t anticipate the price of oil going wild when Iran closed the Strait of Hormuz. However, markets took almost everyone by surprise,” Barkeshli said, adding that futures markets and physical markets behaved differently, with the latter coming under “immense pressure.”

He said traders are broadly confident about oil availability, but less certain about logistics and infrastructure risks. “Once that variable is known, the market is in a better position to place the price right,” he noted, adding that crude is likely to remain in the $75-85 per barrel range.

Even as prices soften, Barkeshli stressed that a full removal of geopolitical risk pricing is unlikely. Shipping and insurance costs, he said, will continue to reflect the “Hormuz factor” for an extended period, while alternative transport routes remain structurally expensive and time-sensitive.

Andres Cala, geopolitical energy analyst with Montel, also cautioned that short-term price relief may not reflect the medium-term reality.

“Oil and gas prices are pricing in relief, removing part of the war premium on the assumption that Hormuz will gradually reopen and flows will eventually normalize. In my view, that optimism may prove overplayed,” he said.

Cala added that Iran is unlikely to give up key elements of its strategic leverage, including “nuclear breakout potential, some form of influence over Hormuz and associated revenues, and a missile deterrent capable of reaching across the region.” “Those are not bargaining chips, but the architecture of its deterrence,” he said.

He also noted that while easing tensions can support prices in the short run, structural risks in the region mean energy markets are likely to remain elevated over the medium term.

The result is that “while prices may ease in the short term, oil and gas are likely to remain structurally elevated over the medium and long term until irreversible agreements are reached,” Cala said, adding that even then, Israel retains the ability to destabilize the process through Lebanon or elsewhere, and there is little evidence Washington can fully constrain that risk.

According to independent research and energy intelligence company Rystad Energy, four scenarios are now shaping expectations for the coming months.

The most likely outcome, with a 55% probability, is a limited agreement within the 60-day period. In this case, oil flows through the Strait of Hormuz are expected to recover to around 10 million barrels per day (bpd) by January, while a geopolitical risk premium of $5-10 per barrel would likely remain embedded in prices.

A second scenario, assigned a 25% probability, assumes that a comprehensive deal is not reached but a ceasefire holds. Under this case, flows through Hormuz could remain constrained at around 5 million bpd, sustaining a $10 risk premium.

If negotiations fail and conflict resumes, analysts warn that the risk premium could rise sharply to $15-20 per barrel, though this outcome is seen as relatively unlikely at 10%.

A full-scale nuclear agreement represents another low-probability scenario – with 10% – under which oil flows through the Strait of Hormuz could rise to 14 million bpd, largely eliminating the risk premium and restoring stability to global oil markets. Crude Oil Prices Fall Below $80 as Supply Risk Eases