Brent Futures Underprice Risks of Prolonged Iran Disruption

The ongoing conflict between the United States and Iran has led to renewed optimism for a lasting peace deal, causing Brent futures to drop nearly 5% to around $92.06.

However, despite this dip in prices, market analysts argue that crude oil futures are not accurately reflecting the stresses in physical markets for both oil and refined products.

The Strait of Hormuz remains a contested area, with shipping volumes through the narrow waterway having collapsed after surging during a brief three-week ceasefire in mid-June.

The UKRAINE LESSON suggests that this situation warrants a stronger response than has actually occurred in oil futures markets, with Brent dropping as low as $70.14 a barrel on July 2 and rallying 45% to a high of $102.00 on July 23.