On Tuesday (April 21), during the European session, crude oil futures traded in a range-bound pattern at high levels compared to the Asian session. Brent crude briefly fell slightly to around $92, but remained above $90 overall. Market traders seemed to have their eyes firmly on the upcoming resumption of US-Iran peace talks in Pakistan, hoping that the delegation led by US Vice President Vance could bring a breakthrough. However, this optimistic pricing based on diplomatic signals is increasingly detached from the physical reality of oil supply. The chaotic state of the Strait of Hormuz, the significant depletion of inventories, and the lag in recovery are being systematically underestimated by short-term "peace expectations."



Latest Developments from Ceasefire Expiration to Chaos in the Strait

The events have unfolded like a rollercoaster, directly impacting every pulse in the oil market. The ceasefire agreement expires this Wednesday, and US President Trump has made it clear that an extension is "unlikely." This deadline is forcing negotiations back into the spotlight. Latest reports indicate that Vice President Vance plans to lead a delegation to Islamabad. While Iran has expressed strong distrust due to the continued US blockade of ports, it has not completely closed the door to dialogue. Reuters reports that the Iranian delegation has confirmed its attendance, but only on the condition that the US release some of the detained vessels as a goodwill signal.

The situation in the Strait of Hormuz has deteriorated sharply since the weekend, becoming the core trigger for oil price volatility. Iran initially announced the opening of the strait, but then reimposed restrictions after accusing the United States of violating the agreement, even firing on oil tankers attempting to pass. The US Navy seized an Iranian cargo ship, the first such action since the blockade began. Satellite data and shipping tracking platforms show that tanker traffic in the strait has plummeted by more than 90% compared to pre-war levels, with daily throughput dropping from a normal 21 million barrels to less than 2 million barrels. Large quantities of crude oil and condensate are stranded in Gulf ports, and the global oil supply chain is experiencing one of the most severe single supply shocks in history.

Brent crude surged over 7% in Asian trading on Monday, but then quickly retreated nearly 4% due to rumors of renewed negotiations. This headline-driven price volatility is a typical scenario that has repeatedly played out in the oil market over the past week. On Sunday, the Iranian Revolutionary Guard announced that it was "ready to play new cards on the battlefield," directly targeting any ships attempting to force their way through the Strait of Hormuz; on Monday morning, Trump posted on social media that "Iran has repeatedly violated the ceasefire, and our patience is limited," causing oil prices to rebound by $0.8 per barrel. Pakistan, as a mediator, is having its diplomatic efforts closely monitored by global energy traders, including the latest statement from German lawmakers urging Iran to accept negotiations for the sake of its economy.

Reports released by shipping data providers such as Kpler and Vortexa in the past eight hours show that despite sporadic "opening" announcements, actual loading operations remain frozen. Asian refineries have begun urgently seeking alternative sources of cargo, turning to West African and Latin American crude oil, but freight and time costs have both risen sharply.

Meanwhile, inventory dynamics are deteriorating in real time. The release of US Strategic Petroleum Reserves (SPR) has exceeded expectations, but it is still insufficient to fill the supply gap caused by the Middle East disruptions. The latest EIA weekly report (updated in the past 8 hours) shows that crude oil inventories at the Cushing hub have decreased by 3.2 million barrels from the previous week, and global visible inventories have reached extremely low levels. The timeline clearly shows that every advancement or setback in negotiations directly reflects an immediate reaction in oil prices, but resolving the physical bottleneck in the Taiwan Strait cannot be achieved instantly with a single agreement.

Analysts warn: Optimism masks reality

As events unfolded rapidly, market opinions diverged sharply. One group, comprised mainly of high-frequency traders and some hedge funds, favored a rapid pricing of the "peace dividend": any positive diplomatic signal would be enough to trigger position liquidation and long covering, pushing oil prices down in the short term. The other group, comprised of mainstream investment bank strategists and energy analysts, repeatedly emphasized the severity of the physical realities of oil, warning that current pricing had deviated significantly from supply and demand fundamentals.

In their latest commentary, ING strategists noted that the energy market is continuing to price in longer-term supply disruptions, but optimism still dominates short-term trading. Institutional scenario analysis shows that even under the most optimistic assumptions, Straits traffic will not begin to gradually recover until the end of April, while the baseline scenario assumes disruptions will continue until mid-May or even longer.

ING emphasizes that the market has underestimated the actual lag caused by tanker re-insurance, route detours, and port congestion—factors that will extend the recovery process by at least 4-6 weeks compared to expectations.

Goldman Sachs' global commodities research team significantly raised its 2026 oil price forecast last week, increasing the average Brent crude price for the year from $77 to $92. The reason given was that, under a neutral scenario, the average Brent crude price for the remainder of the year would likely be locked in the $95-$115 range. If the disruption continues until the end of the second quarter, in an extreme scenario, oil prices testing $150 or even higher is not impossible.

Other institutions largely agree. ANZ energy analysts point out that the cost of Asian buyers switching to alternative crude oils has pushed up global refinery crack spreads, with the WTI-Brent spread widening to over $4, reflecting real pressure on the logistics chain.

In its April Short-Term Energy Outlook, the EIA projected that Brent crude could reach $118 per barrel in the second quarter, with a premium of $50-70 above the pre-war baseline already "locked in." The EIA also significantly lowered its 2026 global oil demand growth forecast from 1.2 million barrels per day to 700,000 barrels per day, citing demand destruction and economic slowdown risks caused by high oil prices. A recent report from Wood Mackenzie adds that soaring capital expenditures and insurance costs for upstream restarts will further raise the recovery threshold.

These views converge on a core judgment: current oil market pricing is more based on "expected transactions" than on actual supply and demand. Even if negotiations make temporary progress, the downside for oil prices is extremely limited; the year's low is likely to be far higher than pre-war levels, while in a neutral scenario, the annual average price may fluctuate in the range of $100-$110.

Why does optimism continue to obscure the reality of the oil industry?

First, there's the short-sightedness of trading behavior. Driven by high-frequency trading and algorithms, diplomatic headlines can instantly trigger adjustments to positions worth hundreds of millions of dollars. An Iranian "open" statement or Trump's "progressing well" tweet can ignite a rebound in risk appetite, causing a rapid pullback in oil prices. However, physical indicators—actual tanker traffic, Cushing inventories, and insurance rates—change slowly and are often fully priced in by the market with a lag of several weeks. High-frequency trading data from the past eight hours shows that net long positions held by funds have decreased for three consecutive days, but this still falls far short of reflecting the true supply gap.

Secondly, there is information asymmetry and selective interpretation. The statements from both the US and Iran present a "Rashomon effect": the US emphasizes that it has "presented the best final solution," while Iran accuses it of "excessive demands" and "continued blockade." Traders tend to accept signals that align with their risk appetite, ignoring the Iranian Revolutionary Guard's actual control over the Strait and the fragile sustainability of any agreement. The latest shipping and satellite monitoring data show that actual traffic volume in the Strait remains near zero, a stark contrast to the optimistic diplomatic narrative.

Third is structural underestimation, which is the core reason why the reality of oil is being obscured. Returning to normalcy is not as simple as flipping a switch:

Inventory depletion: The conflict has led to large-scale stockpiling and the release of strategic reserves, which will take 3-6 months to replenish;

Production restart: After the shutdown of oil fields in Iran and surrounding areas, restarting involves safety inspections, technical debugging, and labor mobilization, which will take at least 2-4 weeks;

Logistics chain: Asian refineries face higher freight costs, extra time spent detouring around the Suez Canal or the Cape of Good Hope, and insurance rates that have increased by 300%-500% compared to pre-war levels;

Backup capacity constraints: Although Saudi Arabia and the UAE have the potential to increase production, they are constrained by OPEC+ quotas and facility maintenance, and cannot fully fill the gap.

Historical precedents further corroborate this viewpoint. In the early stages of the Russia-Ukraine conflict in 2022, the market also experienced a rapid decline due to "peace expectations," but actual supply adjustments took several months. The current disruption at Hormuz is far larger than that, and the recovery period is expected to be even longer. Traders who focus solely on the negotiation timeline while ignoring these physical constraints risk a revaluation of prices.

Outlook: Reality will ultimately dictate oil pricing.

We believe the oil market needs to prepare for two paths:

Optimistic Scenario (Low Probability): A temporary memorandum of understanding is reached in the negotiations, and traffic in the Strait of Hormuz gradually recovers in April and May. Oil prices face short-term downward pressure, but the low point is still significantly higher than the pre-war level of $80.

Real-world scenario (high probability): The disruption will continue, the recovery process will be lengthy and unstable, oil prices will remain high, and volatility will persist. The average price this year may far exceed previous expectations, and Brent crude may fluctuate between $100 and $120.

Investment Insights

In the short term, the focus will be on the ceasefire expiring on Wednesday, real-time developments in the Pakistan negotiations, and physical indicators such as Kplertanker traffic, EIA weekly inventory report, and satellite strait monitoring.

In the medium to long term, build energy positions to hedge supply risks, paying attention to the WTI/Brent futures curve structure and crack spread.

Avoid relying solely on diplomatic narratives and instead focus more on hard indicators such as inventory levels, production recovery, and logistics data.

The oil market is essentially a convergence of real supply and demand with geopolitical maneuvering. The optimistic atmosphere surrounding the recent US-Iran negotiations may offer the market a short-term respite, but only by confronting the long-term damage from the Strait of Hormuz, the lengthy process of inventory rebuilding, and the fragility of the agreement can pricing truly return to rationality. In the coming weeks and months, the event timeline will continue to evolve rapidly, and the structural realities revealed by the perspectives presented will ultimately dominate oil price trends.