Goldman Sachs analysts recently reported that the options markets indicate only a 4% chance of a significant disruption in oil supplies through the Strait of Hormuz, following the ceasefire between Iran and Israel. This assessment comes after heightened fears that Iran might retaliate by closing the strait in response to U.S. strikes on its nuclear facilities. On Monday, Brent crude futures surged to $81.40, reflecting these concerns, but prices dropped below $68 the following day as worries eased with the announcement of the truce.
The decline in the geopolitical risk premium can be attributed to several factors. Traders have become accustomed to major geopolitical events that, thus far, have not drastically affected oil supply. Additionally, Iran’s measured response and the strong incentives for both the U.S. and China to maintain stable oil flows have played a significant role in alleviating concerns.
Analysts from Goldman Sachs also pointed out a probable shift towards substantial inventory builds as demand typically wanes in the fall. Looking ahead, the analysts believe there is a 60% likelihood that Brent crude will remain within the $60 range over the next three months. Conversely, they acknowledge a 28% chance that prices could surpass $70 per barrel.
In the event of a disruption to oil flows through the Strait of Hormuz, Goldman predicts that Brent prices could skyrocket to $90 a barrel. This situation underscores the delicate balance of geopolitical factors and market responses in the oil industry.