Oil Market May Be Overreacting to Truce Hopes

The recent oil selloff may be ahead of itself, according to analysts from major commercial banks. The US benchmark West Texas Intermediate (WTI) barrel remains depressed near $80 amid hopes of a new round of talks between the US and Iran.

Analysts warn that the market might have overreacted to a fragile truce, which could lead to sustained lower crude prices. However, this would require free traffic through the Strait of Hormuz, according to commodity experts at ING.

Societe Generale strikes a similarly cautious tone, arguing that a return to pre-war and early July levels is a big ask without fully-fledged commitment to peace and re-opening of the Strait of Hormus. The bank's commodity analysts estimate that every month without a lasting resolution adds at least $10/bbl to Brent prices.