US-Iran Peace Talks: Oil Prices May Remain Elevated Above $85 Per Barrel Despite Strait of Hormuz Opening

Oil Prices Remain High Amid Ongoing US-Iran Tensions

Oil prices have cooled off from yesterday's spike, but investors are cautious about the prospects of a sustained decline in the face of ongoing tensions between the US and Iran. The two-week ceasefire is set to expire this week, and investors are keenly eyeing the truce negotiations. However, brokerages estimate that crude oil prices will remain high even if the blockade at the Strait of Hormuz, a key point of contention in the US-Iran peace talks, is lifted.

The closure of the Strait has resulted in a significant decline in global oil supplied, with a decline of 10.1 million barrels per day (mmbpd) last month and expectations of it deepening to approximately 13 mmbpd in April. The International Energy Agency (IEA) has revised its forecast, expecting global oil demand to decrease by 80 thousand barrels per day (kbpd) to 104.3 mmbpd in CY26 and global oil supply to dip by approximately 1.5 mmbpd to 104.7 mmbpd in CY26.

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The impact of the Middle East crisis is evident in the sharp increase in global oil surplus, which is expected to be at approximately 0.4 mmbpd in CY26, down from 2.2 mmbpd in CY25. Supplies via the Strait are at only 10% of the pre-war levels, with countries starting to explore alternative routes. Exports via alternative routes, such as Saudi Arabia's west coast, Fujairah (UAE), and the Iraq-Türkiye (ITP) pipeline to Ceyhan, have scaled up sharply, rising to 7.2mb/d from sub-4mb/d levels before the war.

Motilal Oswal has raised its Brent crude assumptions upwards to $75/65 per barrel for FY27/28 from $60/60 per barrel, citing delayed restoration of supply and export flows. JM Financial has also echoed similar bullish views on oil, stating that prices may remain elevated at approximately $85 per barrel in the near term due to tightness in demand-supply gap and gradual restoration of crude output.

The US-Iran ceasefire, which expires on Wednesday evening, is being closely tracked by traders and investors alike. US President Donald Trump has stated that the American blockade will remain in place for now, and the ceasefire is not likely to be extended. Talks between the two countries are expected to take place in Pakistan.