- Oil prices are holding below $100 amid ceasefire hopes, but markets remain highly volatile and driven by geopolitical headlines.
- Physical supply is still severely constrained, with flows through the Strait of Hormuz far below normal and spot prices surging well above futures.
- Price risks are sharply two-sided, with potential for either a major rally if disruptions persist or a drop if diplomacy restores flows.
prices have held steady below $100 per barrel since the U.S. on Monday initiated a naval blockade to deter Iran-linked ships from passing through the Strait of Hormuz.
The three days of calmer oil futures markets so far this week aren’t expected to last long amid the volatile geopolitical situation at the world’s most vital oil shipping lane.
The price of oil has the potential to either surge to new highs or slump to pre-war levels, depending on the U.S.-Iran talks, but most of all, on the status of navigability of the Strait of Hormuz and how fast some semblance of normal traffic could eventually resume.
For now, despite the U.S. blockade and Central Command’s claim that the blockade is a major success, traffic of non-Iranian vessels hasn’t been restored, while some Iran-flagged ships have been observed by vessel-tracking providers to have successfully breached the blockade.
Globally, physical supply remains severely constrained, as evidenced by $150 per barrel prices for some non-Middle Eastern crudes that refiners are willing to pay for. The price of physical crude for immediate delivery has soared amid the supply constraints and is about $40 per barrel more expensive than the futures.
But the futures market moves on headlines and sentiment, and right now it pins its hopes on the prospect of renewed U.S.-Iran talks, possibly as soon as this week.
For analysts, forecasting oil prices has become even more guesswork than ever before, as uncertainties and conflicting messages from the Trump Administration have reduced visibility on price projections to near zero.
Goldman Sachs, for example, this week kept its average and forecasts for 2026, at $83 and $78 per barrel, respectively. The investment bank, however, flagged both upside and downside risks to these projections.
Upside vs Downside Risks
Low oil flow volumes through the Strait of Hormuz pose the biggest upside risk, according to a Goldman note cited by Reuters. The Wall Street bank’s analysts estimated that oil flows are only 10% of pre-war levels at just 2.1 million barrels per day (bpd), and no LNG has yet passed the Strait since the war began on February 28.
“The ceasefire has diminished the risk premium and the probability of very lengthy and large supply losses,” Daan Struyven, Goldman Sachs co-head of global commodities research, told CNBC’s ‘Squawk on the Street’ program on Wednesday.
“At the same time the flows through the Strait are taking time to recover, so net it’s still upside to the forecast,” Struyven added.
Goldman has quantified the current damage to supply at about 10-11 million bpd, while demand losses are perhaps offsetting about 3 million bpd of these, the strategist said.
Demand losses are already very significant in Asia, especially in the aviation and petrochemicals sector. The longer the demand destruction in Asia lasts, the more it would spread to other continents and to other product markets, Struyven noted.
Goldman Sachs kept its price forecasts unchanged from last week as it assumes that the flows at the Strait of Hormuz would begin to recover and reach near-normal by the middle of May, and Gulf countries’ upstream production takes until mid-June to recover, Struyven told CNBC.
Last week, Goldman Sachs warned that Brent Crude is expected to average above $100 per barrel this year if the Strait of Hormuz remains mostly shut to tanker traffic for another month.
If the severely limited traffic at the Strait of Hormuz continues for longer than another month, this would lead to additional loss of upstream production in the Middle East. In this case, Brent Crude prices could average $120 per barrel in the third quarter and $115 in the final quarter of the year, according to Goldman Sachs.
On the downside for oil prices, the bank estimates that the production shut-ins in the Persian Gulf are lower than previously feared. Moreover, there is significant demand destruction – due to spiking prices and shortages – which allows the market to rebalance with “slightly less elevated prices” than it would have otherwise, Struyven said.
Other analysts also flag firmly two-sided risk to their outlooks.
The oil futures market is steady or lower amid hopes that the U.S. and Iran would extend their ceasefire by another two weeks, along with a potential resumption in talks to bring an end to the war, ING commodities strategists Warren Patterson and Ewa Manthey said in a Thursday note.
“However, the physical market is becoming tighter every day that passes without a restart of oil flows through the Strait of Hormuz,” they noted.
After taking into consideration pipeline diversions and the trickle of tankers through the Strait of Hormuz, ING estimates that roughly 13 million bpd has been disrupted and “with the US blockade, this number could creep higher.”
Scandinavian bank SEB assumes in its base-case scenario that the Strait of Hormuz would operate at only 20% of normal capacity until mid-May before full reopening, and that no further major oil or gas infrastructure in the Persian Gulf is damaged.
Yet, SEB reiterated in a Wednesday note that “the SoH is not Trump’s alone to reopen” as Iran could opt to retain some control even if a deal is reached.
“The risk to our outlook is firmly two-sided: faster diplomacy could bring prices down materially from here, while a breakdown in talks or, worse, infrastructure damage could send financial Brent contracts violently higher, while also pushing Dated Brent decisively above USD 150/bl,” Ole Hvalbye, Analyst Commodities at SEB, wrote.
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