What are the market expectations for oil prices despite recent spikes?

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Market Expectations for Oil Prices Amidst US-Iran Tensions

Market expectations suggest that while recent flare-ups between the US and Iran have caused oil prices to spike, a return to the exceptionally high levels seen earlier in the year is unlikely. The near-term outlook anticipates continued price support due to elevated risk premiums, but this is balanced against a slow recovery in demand and an oversupplied market.
Near-Term Price Support Expected

The immediate impact of renewed hostilities between the US and Iran has been a rise in oil prices, with both main contracts experiencing an increase of up to 4.5 per cent. This surge reflects traders' assumptions of the worst-case scenario following incidents such as the Iranian attack on a commercial ship in the Strait of Hormuz. This risk premium is expected to sustain prices in the short term.
Unlikely to Replicate Previous Price Peaks

Despite the current upward pressure, analysts indicate that oil prices are unlikely to reach the "lofty levels" observed in March following the initial outbreak of war. This projection is based on several factors that counter sustained dramatic price increases. The market had previously priced in a more optimistic outcome for the US-Iran arrangement, and the recent re-escalation highlights the fragility of that assumption.
Demand Recovery and Oversupply Concerns

A significant factor limiting the potential for extreme price hikes is the ongoing slow recovery of global oil demand. This sluggish demand is occurring concurrently with an increase in supply. Specifically, the release of oil from stranded tankers and the expansion of output quotas by OPEC+ continue to add substantial volumes to the market, contributing to an already oversupplied outlook.

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What are the market expectations for oil prices despite recent spikes?

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