Oil jumps as Iran hardens Hormuz terms: is crude sell-off now a bull trap?

Oil prices rose on Monday as traders reassessed whether last week’s sharp sell-off had run ahead of diplomacy over the Strait of Hormuz.

Brent crude climbed about 1% to $84.46 a barrel in early trading, while West Texas Intermediate rose to $78.79, clawing back part of losses of more than 7% last week.

The rebound came after Iran said a shipping arrangement with Oman was close, while making a broader reopening of the strait conditional on sweeping concessions from Washington.

Those conditions include sanctions relief, the release of frozen Iranian assets, compensation for war damage, an end to US military threats and the removal of Washington’s naval blockade.

Traders priced the deal before the tankers returned

The scale of last week’s decline shows how quickly the market embraced the prospect of de-escalation.

Brent fell 5.3% on August 4 to settle at $79.36 a barrel, while WTI dropped 5.7% to $75.77 after US Treasury Secretary Scott Bessent suggested Washington could be close to an agreement with Iran that would help reopen Hormuz.

Robert Yawger of Mizuho said in a note cited by The Wall Street Journal that negotiations were focused on reopening the strait and getting Gulf barrels moving again.

He expected an agreement to emerge despite the unresolved issues surrounding the wider conflict.

A deal on shipping lanes is not the same thing as a full return to pre-crisis oil flows.

Iran has since raised the political price for reopening the waterway, while attacks on commercial shipping have kept security risks elevated.

JPMorgan warns the buffer gets thinner each month

The supply picture becomes more dangerous the longer disruption persists.

JPMorgan analysts led by commodities strategist Natasha Kaneva said markets appeared reluctant to reprice geopolitical risk repeatedly, with investors instead assuming some form of near-term resolution.

But the bank warned that global buffers are finite.

With Chinese imports depressed, JPMorgan estimates that each additional month of conflict and weaker-than-expected Hormuz flows could add roughly $7-$8 a barrel to Brent’s fair value.

If the disruption lasts three months, the bank sees the monthly average price reach about $114.

Standard Chartered sees similar fragility. Energy research head Emily Ashford said in comments reported by Rigzone that crude prices were likely to remain driven by escalation and de-escalation headlines.

Renewed vessel attacks and the fragility of the ceasefire had interrupted the market’s return towards normal conditions, she said.

A bull trap today does not kill the bearish 2027 case

Monday’s rebound does not necessarily mean oil is entering another sustained rally.

Citi raised its third-quarter Brent forecast to $80 a barrel from $75 on August 7 because the US-Iran conflict and supply disruption were lasting longer than it previously expected.

Yet the bank kept its fourth-quarter forecast at $70 and its 2027 average at $65, suggesting prices could still fall materially once supply normalises.

JPMorgan is also bearish beyond the immediate crisis. Its latest base case puts Brent at an average of $80 in the fourth quarter before renewed oversupply pushes the 2027 average towards $63.

Goldman Sachs expects Brent to remain broadly between $80 and $90 until either a credible US-Iran agreement emerges or the conflict escalates materially.