Goldman Sachs reports a slight decline in geopolitical risk premium indicators for the crude oil market, following a surge in Brent crude oil implied volatility and call option implied volatility last week. Traders are evaluating the developments in the Middle East conflict against ongoing bearish demand expectations, leading to stabilization in Asian market oil prices.
Brent crude futures are currently trading at $77.74 per barrel, marking a 0.7% increase. This comes after a more than 4% drop in prices the previous day due to potential ceasefire talks between Hezbollah and Israel.
Goldman Sachs still forecasts that Brent crude prices could rise by up to $10 to $20 per barrel if there is a disruption in Iranian oil production, acknowledging the uncertainty surrounding geopolitical conflict developments. However, the bank's report released on Tuesday suggests that without significant disruptions, oil prices might stabilize around current levels this quarter.
Goldman Sachs noted that last week, the skew of call option implied volatility surged to levels last seen in mid-April, while Brent's implied volatility exceeded fair value predicted by their model for the first time this year. According to a previous report by Goldman Sachs, the options market pricing indicates around a 5% probability of a $20 per barrel increase in oil prices over the next month. This scenario is roughly equivalent to a persistent supply disruption of 2 million barrels per day for six months, absent OPEC production cuts.
