Brent Crude: Price Extends Sharp Decline — Deutsche Bank

Brent crude prices extended their sharp decline, giving back more than half of the recent ~13% rebound. Deutsche Bank's morning Reid team, including Peter Sidorov and Jim Reid, noted that with signs of easing geopolitical tensions in the Middle East, energy markets are under clear pressure, dragging oil prices lower.

**Geopolitical Risk Premium Fades, Pressuring Oil Prices**

According to analysis by Deutsche Bank Research's Jim Reid and his team, Brent crude fell sharply last week, with the direct trigger being increased traffic through the Strait of Hormuz. The rapid improvement in navigability of this key waterway was interpreted by the market as a reduced risk of supply disruptions, thereby easing the geopolitical risk premium that had previously supported oil prices. Market reports indicate that traders are reassessing the situation, with positions built on conflict concerns showing signs of unwinding.

**Easing Inflation Concerns Weaken Bullish Momentum**

The pullback in oil prices is also linked to the easing of inflation concerns that had earlier driven prices higher. In their report, Deutsche Bank analysts including Henry Allen noted that as geopolitical tensions subsided, fears that energy costs would stoke inflation and force central banks to maintain hawkish stances have faded. This has weakened some of the buying momentum driven by macro-hedging demand. Brent crude was previously reported to have fallen to near four-month lows, and despite current price fluctuations, it remains in recent low territory, reflecting a shift in market sentiment.

**Short-Term Outlook Depends on How Events Unfold**

Although oil prices have corrected significantly, the Deutsche Bank team cautioned that conflict risks have not fully disappeared. The market's near-term trajectory will remain highly dependent on further developments in the Middle East and the sustainability of navigation through key shipping lanes. As of the time of writing, Brent crude was trading near $85.11 per barrel, notably off recent highs but rebounding from the four-month lows touched earlier, indicating divergence between bulls and bears at current levels.