Oil: Gulf Diplomacy Drives Price Pullback – ING

International oil prices are facing renewed downward pressure amid expectations that diplomatic interactions in the Gulf region will ease supply risks. ING analysts Warren Patterson and Ewa Manthey noted that ICE Brent crude had previously fallen below the $90-per-barrel threshold as talks surrounding the Strait of Hormuz and Middle East situation progressed, with the market reassessing the geopolitical risk premium. At the latest quote, Brent crude was trading around $85.79, extending its decline from recent highs. The talks involve Iran, Oman, and Pakistan, and their progress has become a key variable driving oil market sentiment in the near term.

**Geopolitical Premium Unwinding as Key Driver**

The core of this oil price correction lies in eased concerns over disruptions to critical transit routes. The Strait of Hormuz is one of the world's most important oil shipping chokepoints, and any expectation of a potential conflict-related blockade injects a hefty risk premium into prices. The ING analysis team believes that current diplomatic progress is gradually eroding this premium. Separately, in a recent assessment, Goldman Sachs has lowered its second-quarter oil price forecast due to reduced risk premiums and an expected recovery in oil flows through the Strait of Hormuz—a view aligned with ING's observations, both pointing to phase-based easing of geopolitical tensions weighing on prices.

**Fragility of Risk Appetite and Two-Way Volatility**

Despite the price pullback driven by diplomatic efforts, volatility in the oil price outlook persists. Earlier, contradictory signals around a US-Iran ceasefire caused oil prices to swing sharply near the $100-per-barrel level, indicating that market sentiment remains fragile due to a lack of geopolitical certainty. Analysts suggest that any signs of talks breaking down or a reversal in the situation could quickly push risk premiums higher again. Meanwhile, US domestic fundamental data also shows mixed signals—for instance, EIA data revealed multiple consecutive weeks of significant builds in US crude inventories, reflecting that actual supply-demand conditions are not overly tight, which further undermines upward momentum in oil prices.