Oil Tests Pre-War Levels on Optimism Over Hormuz, Talks — Market Talk

Crude oil prices are retreating toward pre-conflict levels as market participants price in a reduced risk premium following reports of progress in diplomatic negotiations and potential de-escalation regarding the Strait of Hormuz. This price action reflects a shift in the geopolitical risk appetite channel, where the easing of supply disruption fears is prompting a rapid unwinding of long-dated war hedges. Energy-linked assets and commodity-sensitive currencies are most exposed to this volatility, as the sudden contraction in the geopolitical risk premium forces a recalibration of supply-side inflation expectations. Traders are now shifting their focus toward the upcoming weekly inventory data from the Energy Information Administration to determine if the physical supply-demand balance supports this downward price momentum or if the market remains structurally tight despite the improved diplomatic outlook.

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