Oil prices expected to rally then fall as geopolitical risks fade
According to Rigzone, analysts at BMI (a Fitch Solutions company) expect “significant yet short lived rallies in oil and gas prices” followed by rapid declines as geopolitical risk premiums fade and regional oil flows normalize.
Market Impact
The U.S.-Israel war on Iran has driven Brent crude up around 15% since February 28 to $84 per barrel, but BMI analysts say this aligns with their core scenario of Brent trading between $75-90 per barrel in coming weeks. They predict a sharp selloff in Q2 as investors refocus on bearish underlying fundamentals.
Aaron Hill, Chief Market Analyst at FP Markets, confirmed oil markets “continue to push northbound” with ongoing geopolitical tensions. However, analysts note that crude production and export losses so far have primarily resulted from preventive asset shutdowns and risk avoidance behavior around shipping routes, all of which can be quickly reversed.
The analysts warn that escalation risks remain substantial, with regional oil and gas infrastructure vulnerable to attack and transit through the Strait of Hormuz effectively halted.
What It Means for Subcontractors
- Expect higher fuel and logistics costs short-term - The 15% Brent increase will flow through to diesel and transportation costs over the next few weeks
- Plan for cost volatility, not sustained increases - Price rallies are expected to be temporary, so avoid locking in long-term contracts at peak pricing
- Monitor cash flow closely through Q2 - Sharp price declines predicted for Q2 could benefit fuel costs but may reduce overall drilling activity
- Prepare for potential supply chain disruptions - While current outages are mostly preventive, any infrastructure attacks could create equipment and material shortages
- Consider geographic exposure - Smaller economies with thinner oil reserves could face supply constraints within weeks, potentially affecting international projects
