Oil prices fell to their lowest level since August, with WTI around $85 and Brent crude below or near $90. Market optimism regarding a de-escalation of the US-Iran conflict quickly priced in the geopolitical premium, while supply recovery and weak demand fundamentals combined to create a synergy. Major banks held differing views: some raised their medium-term forecasts while retaining risk premiums, while others pointed out that the market has returned to oversupply. International oil prices have recently seen a significant correction. Brent crude briefly fell below $90 per barrel for the first time since the end of August, while WTI hovered around $85, with overall prices returning to near two-month lows. The immediate trigger was the rising market expectation of a de-escalation of the US-Iran conflict—Trump signaled that the conflict could end quickly and further military action was "not currently necessary," coupled with changes in the political atmosphere following the midterm elections, rapidly compressing the previously accumulated geopolitical risk premium. However, price movements are not simply driven by sentiment. A substantial recovery on the supply side, combined with seasonal demand and the suppressive effect of high prices, constitute a deeper support. Recent assessments from several major investment banks and research institutions also outline this complex situation.

The geopolitical premium has been quickly reversed, but has not completely disappeared.

Trump's statements and positive diplomatic signals have significantly reduced market pricing in further escalation of the conflict. Institutions like ING point out that the market is continuing to digest the geopolitical risk premium that has accumulated recently. Brent crude has fallen by more than 20% from its late October high, reflecting this process. Meanwhile, institutions like Goldman Sachs had earlier raised their medium-term forecasts. Goldman Sachs raised its December Brent forecast to $105 and its 2027 average forecast to $88, citing "significant" downside risks to Middle East supply and incorporating a global supply disruption reserve of approximately 1 million barrels per day in its baseline scenario. Its upside scenario even sees Brent crude potentially averaging around $130 if Gulf production continues to be significantly lower than in previous years. Morgan Stanley, ANZ, UBS, and others had also previously raised their fourth-quarter or year-end forecasts to the $105-110 range, emphasizing the continued constraints from transportation, refineries, and regional exports. Observers such as Eurasia Group cautioned that without a more sustained diplomatic breakthrough, the downside potential for prices to fall below $90 may be limited. The current pullback is more of a premium compression than a complete elimination of risk.

Supply recovery becomes a key variable

Actual supply data is changing. Middle Eastern crude oil exports have rebounded significantly, approaching or reaching pre-war levels, and Saudi Arabia's exports and inventories are also showing signs of recovery. Western Canadian crude oil exports have hit a record high, and overall Asian supply has returned to normal levels. JPMorgan Chase points out that the global oil market returned to a surplus in September and October, with a surplus of approximately 1.1-1.4 million barrels per day, close to last year's average. Both inventory and trade flows indicate that excess barrels are returning to the market, with Middle Eastern exports rebounding sharply from their lows and production in Latin America providing additional support. HSBC has raised its Saudi Aramco production forecast, believing that export recovery is faster than previously expected. In terms of refined products, traffic in the Strait of Hormuz has rebounded somewhat, providing some relief to the tight fuel market, but the recovery in product exports is still significantly lagging behind crude oil, with the diesel market remaining particularly tight. Institutions such as Saxo Bank emphasize that crude oil flows are close to pre-war levels, while LNG and refined product supply constraints continue to support related crack spreads.

Signs of weakening demand are emerging.

High oil prices have already dampened consumption, and coupled with seasonal factors, demand growth has been weak. US oil demand is lower than last year's level, and while imports by major buyers have rebounded, this is largely due to inventory replenishment rather than strong end-user demand. Increased sensitivity to high prices in some Asian markets has further limited upside potential. JPMorgan estimates that global demand has cumulatively declined by several million barrels per day since the conflict, with high prices and supply disruptions jointly suppressing consumption. This contrasts with supply recovery, causing the market balance to shift from shortage to surplus.

Divergence and Consensus among Institutional Views

Overall, Wall Street banks' recent operations exhibit a dual characteristic: "raising medium-term expectations while acknowledging short-term premium retracement." Goldman Sachs and others maintain high risk premium assumptions, believing that geopolitical uncertainties in the Middle East and Russia/Ukraine will continue to influence pricing; JPMorgan Chase and HSBC, on the other hand, emphasize that supply recovery and weak demand have pushed the market back into surplus. Data agencies such as Kpler also point out that the recovery in Middle Eastern crude oil exports coupled with relatively restrained demand may create slight surplus pressure at times. The consensus is that short-term prices are highly sensitive to geopolitical news, while medium-term trends will depend on the sustainability of supply recovery, demand verification, and any new disruption risks. The tight balance of refined products (especially diesel) and the potential easing of crude oil prices create a structural divergence, which remains a focus of market attention. Currently, oil prices are in a phase where sentiment and fundamentals are intertwined. Geopolitical signals continue to dominate short-term fluctuations, while supply recovery and demand realities determine the direction of price movement. Market participants are closely monitoring export data, inventory changes, and diplomatic developments to determine whether premium compression will deepen further or be interrupted by new risk events.