Brent has retreated sharply as markets reacted to expectations that the Strait of Hormuz will reopen after a US–Iran deal. Since early May, the benchmark has fallen by more than USD30/bbl and is now trading below USD80/bbl, according to OCBC’s FX strategy team. Oil prices later edged higher overnight as doubts surfaced over the durability of the agreement, keeping a security risk premium in play.
OCBC maintained its end-2026 Brent forecast at USD80/bbl, while projecting a gradual drift towards a low USD60 range across 2027–28. Near-term, it expects potential supply disruption to limit further downside. The move followed a strike on a cargo ship in the Strait of Hormuz that caused damage to its bridge, and a Wall Street Journal report said Iran may be responsible, although this remains unconfirmed.
Fragile Market Sentiment Amid Optimism Over Strait Reopening
As of June 26, 2026, Brent crude has fallen sharply below USD80 per barrel, but we see this as a fragile situation. The market seems overly optimistic about the reopening of the Strait of Hormuz. We believe the security risk premium that disappeared could return very quickly.
The recent strike on a cargo ship is a clear warning sign that the situation is not stable. Although the strait is technically open, tanker traffic is reportedly still 15% below pre-crisis levels as shippers await further security guarantees. Around 21 million barrels of oil pass through this chokepoint daily, so any disruption has an immediate global impact.
Market Nervousness And Strategic Positioning
We are now seeing signs of this nervousness in the options market. The CBOE Crude Oil Volatility Index (OVX), while down from its May peak, remains elevated at 45, well above its five-year average of 35. The pricing for call options expiring in the next 60 days has also begun to firm up, indicating that traders are starting to hedge against a sudden price spike.
Given this, we would advise against positioning for further significant price declines in the coming weeks. Instead, traders should consider strategies that benefit from price stability or a sharp move upwards. Buying out-of-the-money call options could be an effective, low-cost way to position for a potential supply-scare rally towards our end-of-year target of USD80.
This fragility is not new, and history shows how quickly these situations can escalate. We only need to look back to the 2019 attacks on Saudi facilities, which caused Brent to spike nearly 20% in a single day. The current environment feels similarly tense, despite the diplomatic progress.
