Crude oil prices remain confined to a narrow trading range of around $10 per barrel, despite U.S. intelligence reports suggesting Israel is preparing for a potential strike on Iran. While geopolitical tensions have flared repeatedly in recent years, investors have generally concluded that the actual risk of supply disruption remains limited.
Since 2022, Iran has managed to boost its oil output despite U.S. sanctions, while OPEC has actively cut production to manage supply and stabilize prices. Although a potential military strike might lead to a short-term price surge, the significant spare production capacity among other OPEC members could quickly be activated, capping the possibility of a sustained rally.
Following a sharp drop in early April, both West Texas Intermediate (WTI) and Brent crude stabilized in broad but volatile trading ranges. WTI traded between $55 and $65 per barrel, while Brent hovered between $58.50 and $68.50. Market sentiment remains torn between concerns over rising global supply and fears of economic fallout from ongoing global trade tensions.
According to Ole Hansen, Head of Commodity Strategy at Saxo Bank, investor attention has increasingly shifted toward developments in the Middle East. Oil market volatility has been partially driven by speculation over nuclear negotiations between Iran and the U.S. A successful outcome could pave the way for increased Iranian oil exports to an already saturated global market, potentially exerting further downward pressure on prices.
However, in the past 24 hours, market pessimism has quickly reversed. Iran’s Supreme Leader Ayatollah Ali Khamenei rejected the idea of renewed talks with the U.S., calling Washington’s demands—especially the halt of uranium enrichment—“outrageous.” Shortly afterward, CNN cited new U.S. intelligence indicating Israel is preparing for a potential military strike on Iranian nuclear facilities.
In response, oil prices rose by $1 per barrel overnight. A military confrontation involving Iran would almost certainly derail nuclear talks and heighten fears over oil supplies from the Persian Gulf—a region that accounts for roughly one-third of the world’s crude exports.
Still, as recent history shows, geopolitical risk premiums rarely persist for long in the oil market. Despite repeated flare-ups in the region over the years, investors tend to view supply threats as contained. According to Goldman Sachs, a disruption of 1 million barrels per day could initially lift prices by over $5 per barrel. However, the impact would likely be short-lived, thanks to ample spare capacity held by Gulf Cooperation Council (GCC) producers—especially Saudi Arabia—and weakened global oil demand.
Since September 2022, when OPEC’s total output peaked at nearly 30 million barrels per day, successive production cuts aimed at stabilizing the market have reduced output by around 2.7 million barrels per day. This has led to a loss in market share for OPEC, benefiting non-OPEC+ producers who have taken advantage of elevated prices. Notably, Iran—exempt from production quotas due to U.S. sanctions—has increased its output by nearly 900,000 barrels per day, boosting its share of OPEC production from 8.3% to over 12% as of last month.
In its latest Monthly Oil Market Report, the International Energy Agency (IEA) warned of a possible oil oversupply both this year and next. This outlook stems from a significant increase in output, including announced production hikes by eight OPEC+ members led by Saudi Arabia, and weaker-than-expected demand growth. Sluggish global economic activity—exacerbated by President Donald Trump’s tariff policies and trade tensions with key partners—has dampened the demand outlook.
Given these conditions, the likelihood of a sustained price rally appears limited. Technical resistance levels near $65 for WTI and $69 for Brent may further cap near-term gains. Even in a worst-case scenario involving disrupted Iranian exports, any spike in prices is likely to be met with aggressive hedging and forward sales by higher-cost producers seeking to lock in revenues. As such, despite continued volatility, underlying structural and fundamental factors suggest a limited runway for sustained price increases.
“Relying on a single asset class—especially one as geopolitically sensitive as energy commodities—can lead to excessive exposure to unpredictable swings,” said Marcin Ciechoński, Head of Saxo Bank’s operations in Poland. “Investors should consider including defensive assets such as bonds, gold, or shares in non-cyclical sectors with low correlation to energy markets. A diversified portfolio helps cushion short-term shocks and supports a more stable long-term strategy.”
Source: CEO.com.pl
