As the US and Iran restart nuclear negotiations, Iran's "offshore oil" reserves reach a new high. What does this mean for oil prices?

As the third round of US-Iran nuclear negotiations resumes in Geneva, Iran is accelerating oil exports through the Strait of Hormuz, leading to a record high in its “maritime oil” reserves. Current oil prices already incorporate significant geopolitical risk premiums, but the global crude oil market is facing a deep restructuring of fundamentals in the medium to long term.

According to CCTV News, before US President Trump had a working breakfast with governors from various states at the White House, he stated that he was considering a “preliminary limited military strike” against Iran to force Iran to accept US demands regarding the nuclear deal. However, military action and diplomatic negotiations may not be mutually exclusive. This tension, combined with Ukraine’s attacks on Russian energy facilities, has become a key recent disturbance in the oil market.

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

However, beneath the surface of geopolitical games, there are underlying shifts in supply and demand. Goldman Sachs predicts that as risk premiums gradually diminish, the global oil market will face a severe oversupply in 2026, hitting a bottom by the end of that year; but the market will re-enter a structural shortage in the second half of 2027, requiring investors to position themselves for significant reversals in the coming years.

Geopolitical tensions support short-term risk premiums

To avoid potential further sanctions, Iran has increased oil shipments through the Strait of Hormuz over the past few weeks. Due to exports exceeding imports, the amount of “maritime oil” loaded onto tankers or headed to the market has continued to grow. Goldman Sachs analysts led by Yulia Zhestkova Grigsby state that the tension between the US and Iran is a key factor keeping Brent crude prices above $70.

Meanwhile, attacks by Ukraine on Russian oil production facilities have further amplified risk premiums. Goldman Sachs reports that earlier this month, Ukraine damaged the Druzhba pipeline supplying oil to Slovakia and Hungary, and another attack on Russian pumping stations on Monday also led to production declines. Data shows that Russia’s drilling activity in December last year decreased by 16% year-over-year.

Rising offshore floating storage suppresses fair value

Despite short-term geopolitical risks remaining high, large amounts of sanctioned crude oil stranded at sea are becoming a significant factor suppressing oil price expectations. Goldman Sachs notes that as offshore crude volumes increase and storage tank pressures rise, discounts offered by sanctioned producers like Russia and Iran are further widening.

The increase in OECD commercial inventories, combined with the high interest rate environment, is leading to a substantial decline in the fair value of crude oil. Goldman Sachs expects that as geopolitical pressures gradually ease within the year, Brent crude will fall back to around $60 in the fourth quarter.

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