Oil Market Premium Set to Dissipate as Fundamentals Reassert Themselves

The oil market is currently trading at a premium due to geopolitical concerns, but forecasters expect this premium to dissipate as fundamentals reassert themselves. According to J.P. Morgan and the EIA, Brent crude is expected to average $80 in Q4 and $78 by year-end, which is below its current price of $88.10.

The bull case for oil prices suggests a return to $120, but this would require a deterioration in the Hormuz situation, rather than a resolution. The market has already absorbed some of the disruption through demand destruction, rather than replacement supply, and forecasters expect this trend to continue.

OPEC+ is adding supply, with a September increase of 188,000 b/d, and both OPEC and the IEA have cut their demand forecasts for 2026. The Fed's hawkish stance has also lifted the dollar, which puts pressure on dollar-denominated crude prices.