Oil prices return to pre-conflict levels, market optimism faces geopolitical realities

(1) Crude oil futures prices have basically given back all the gains since the outbreak of the Iran conflict and are now trading at pre-conflict levels. The uninterrupted passage through the Strait of Hormuz and the ongoing US-Iran negotiations have become the main narratives suppressing oil prices. (2) Institutional analysts point out that the market is firmly holding onto the assumption that the "Middle East war cannot last long." The optimistic statements released during yesterday's negotiations further strengthened this expectation, causing the risk premium to continue to diminish. (3) However, the geopolitical situation is far more complex than it appears on the surface and could suddenly shift. If no substantial progress is made on Iran's nuclear program and proxy issues such as Hezbollah in Lebanon, the risk of escalation remains high. (4) If diplomatic efforts ultimately break down, the market could quickly revert to a war scenario, instantly overturning all the negotiation results that currently offer hope.