Oil: Market optimism underprices supply risks – ING

ING analysts Warren Patterson and Ewa Manthey say Oil is trading on hopes of progress in US–Iran peace talks, while ongoing disruptions through the Strait of Hormuz keep supply risks elevated. They argue markets are underpricing the duration and impact of disrupted flows and restocking needs, implying a higher price floor for Oil for the remainder of 2026.

Oil pricing hope over supply reality

"While energy markets popped higher yesterday following Iran’s decision to reverse its opening of the Strait of Hormuz, they’re still trading in a manner which suggests optimism over US-Iran talks. The aim, of course, is to establish a viable off-ramp that enables energy flows through the Strait of Hormuz to resume on a sustained, long-term basis. But we believe markets are underpricing the ongoing supply disruption."

"Negotiations between the US and Iran are set to resume in Pakistan, with US Vice President JD Vance set to attend. It appears Iran will send a delegation too. This follows earlier suggestions that Iran wouldn’t attend as long as the US blockade continues."

"These talks are important, with the current ceasefire set to end on Wednesday. President Trump has suggested he is unlikely to extend the ceasefire. Therefore, a lack of progress would likely push oil and gas prices higher."

"The longer these supply disruptions persist, the tighter the oil market becomes, leaving a longer path towards normalisation for markets once hostilities end. Energy flows will take time to recover. Upstream production will also take time."

"Taking these factors into account—along with the likelihood that any US–Iran agreement would remain fragile—it appears that while oil prices would face downside pressure, the market’s floor for the rest of the year is considerably higher than it was before the war."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)