As the US and Iran resume nuclear negotiations, Iran's offshore oil reserves reach a record high—what does this mean for oil prices?

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As the third round of US-Iran nuclear talks resumes in Geneva, Iran is accelerating crude oil exports through the Strait of Hormuz, resulting in its “floating oil” reserves reaching a historic high. Significant geopolitical risk premium has already been priced into current oil prices, but the global crude oil market faces a profound reshaping of fundamentals in the medium to long term.

According to CCTV News, before a working breakfast with US governors at the White House, President Trump stated that he is considering a "preliminary limited military strike" on Iran to force Iran to accept US demands regarding the nuclear agreement. However, military action and negotiated compromise are not necessarily mutually exclusive. This heightened tension, coupled with Ukraine’s attacks on Russian energy facilities, constitutes the core disruptive factors in the recent crude oil market.

In a research report released Thursday, Goldman Sachs estimated that current oil prices include a risk premium of about $5 to $6. Supported by this, Brent crude traded above $70.74 on Thursday, while WTI crude was above $65.

However, beneath the surface of geopolitical maneuvering lies an undercurrent of supply-demand dynamics. Goldman Sachs predicts that as the risk premium gradually fades, the global crude oil market will face severe oversupply in 2026 and bottom out at the end of that year; but the market will re-enter a structural shortage in the second half of 2027, so investors need to prepare their positions ahead for the dramatic reversal in the next few years.

Geopolitical Tensions Support Short-term Risk Premium

To avoid potential further sanctions, Iran has increased oil shipments through the Strait of Hormuz in the past few weeks. Since imports are less than exports, the amount of “floating oil” loaded onto oil tankers or shipped to the market continues to grow. Led by Yulia Zhestkova Grigsby, the Goldman Sachs analyst team notes that the tension between the US and Iran is a key factor keeping Brent crude oil prices above $70.

Meanwhile, Ukraine’s attacks on Russian crude production facilities have further amplified the risk premium. A Goldman Sachs report pointed out that earlier this month, Ukraine disrupted the Druzhba pipeline that transports crude to Slovakia and Hungary, and another attack on Monday targeted a Russian pump station, causing output to decline. Data shows that Russia’s drilling activity dropped 16% year-on-year in December last year.

Surge in Floating Storage Suppresses Fair Value

Despite high short-term geopolitical risks, a large amount of sanctioned crude oil stranded at sea is becoming a significant factor suppressing oil price expectations. The Goldman Sachs report observed that as the volume of crude oil at sea increases and tanker pressure rises, discounts offered on crude oil from Russia and Iran—both sanctioned oil-producing countries—are expanding further.

The increase in commercial inventories among OECD countries, coupled with the effect of a high interest rate environment, is causing a substantive decline in the fair value of crude oil. Goldman Sachs expects that as geopolitical pressures gradually ease over the year, Brent crude will fall back to the $60 level in the fourth quarter.

Risk Disclaimer and Exemption ClauseThe market involves risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account individual users’ specific investment goals, financial status, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article match their particular situation. Investment based on this is at your own responsibility. ```