Brent Crude Rally Signals Market Expects High Prices

Key Moments

Oil Surge Tied to Geopolitical Tensions

Deutsche Bank strategists Henry Allen and Jim Reid report that Brent crude has resumed a strong upward move, with spot prices trading above $107 per barrel and long-dated contracts, including December 2027, hitting record levels.

They connect the latest leg of the rally to ongoing US-Iran tensions and fears that the situation around the Strait of Hormuz will not normalize soon. Those geopolitical concerns are feeding into expectations that oil prices could remain elevated for an extended period, rather than just a short-lived spike.

According to their commentary: “The relentless bond selloff has shown no sign of easing, with a fresh rise in yields overnight as oil prices keep moving higher. The immediate driver was the weekend news that President Trump had rejected Iran’s proposal. So Brent crude was up +0.92% yesterday to $105.28/bbl, and this morning it’s up another +1.92% to $107.30/bbl.”

Market Focus Shifts Beyond Front-End Prices

The Deutsche Bank team notes that the energy complex is increasingly being driven by the realization that attempts to reach a US-Iran agreement have repeatedly failed in recent months. As a result, expectations for a quick resolution and a reopening of the Strait of Hormuz have faded, with pricing reflecting a more drawn-out period of tightness.

They write: “In general, there’s been a growing awareness that hopes for a US-Iran deal have been repeatedly dashed in recent months, and that scepticism about the Strait of Hormuz reopening any time soon has led investors to price a longer period of high prices into next year.”

This is evident across the Brent futures curve. Rather than only near-term contracts reacting, longer-dated prices are also pushing higher as investors factor in a sustained high-price environment.

Brent Futures Curve Extends Higher Into 2027

Allen and Reid highlight the move in the December 2027 Brent contract as a clear signal that markets are not treating this as a transitory front-end shock. That contract has not only advanced but set fresh highs, indicating that expectations for elevated prices extend well beyond the short term.

They note: “For instance, the December 2027 Brent future (+0.22%) closed at a new high of $80.29/bbl yesterday, and this morning it’s up again to $80.67/bbl. So for markets it wasn’t just a story about front-end prices yesterday, but a more protracted period of high oil prices stretching well into 2027.”