Oil prices stayed supported by a large risk premium as markets waited for US-Iran talks and Russia-Ukraine talks due to start in Geneva on Tuesday. ICE Brent edged up on Friday after a lower-than-expected US CPI print but still finished down week-on-week.
Uncertainty over US-Iran relations kept the risk premium in place after President Trump said regime change would be best for Iran. A more de-escalatory tone in the Geneva talks could reduce the risk premium and leave weaker supply-demand conditions to push prices lower.
Geopolitical Risk Premium
Attention also turned to OPEC+ as the group prepares to meet on 1 March to decide April production levels. OPEC+ had paused supply increases in the first quarter due to seasonality.
Analysts’ balance sheet expectations point to a large surplus in the second quarter, suggesting no need for added supply from April. Reports said some OPEC+ members believe the market can absorb extra output, which would increase surplus expectations if it happens.
The article was produced using an Artificial Intelligence tool and reviewed by an editor.
The current market feels reminiscent of the situation we observed in early 2025, where a substantial risk premium is supporting oil prices. With Brent crude trading near $88 a barrel, this support seems fragile and highly dependent on ongoing geopolitical headlines rather than underlying market fundamentals. Any easing of tensions could remove this price floor quickly.
Options Positioning
We remember watching the US-Iran and Russia-Ukraine talks in Geneva back in February of 2025, which created an almost identical setup. Once a more de-escalatory tone emerged from those meetings, the risk premium unwound rapidly. In the weeks that followed, Brent crude fell by over 12% as the market refocused on the growing supply surplus that had been ignored.
Today’s fundamental picture is similarly bearish, with U.S. crude inventories, as reported by the EIA, building for the fifth consecutive week to over 449 million barrels. This is compounded by whispers that OPEC+ may consider easing their production quotas in their upcoming March meeting. The International Energy Agency’s latest report also projects a market surplus developing through the second quarter of this year.
This historical parallel suggests that any sign of easing geopolitical tensions could again trigger a sharp sell-off. Traders should consider buying put options on Brent or WTI futures with April or May 2026 expiration dates. This strategy provides a direct way to profit from a potential price decline while limiting the maximum loss to the premium paid for the options.
For a more cost-effective approach, implementing a bear put spread could be an efficient tool. This involves buying a put option at a higher strike price while simultaneously selling a put at a lower strike price for the same expiration. This structure reduces the initial cash outlay, making it a suitable strategy for profiting from a moderate, but not catastrophic, drop in oil prices.
