Wells Fargo’s international economics team reports that the Middle East ceasefire is fragile, keeping oil market risks elevated and confidence in the outlook low. The team assumes active conflict ends by mid‑2026 and expects oil to trend lower into H2 2026.
The report warns that supply risks remain, with potential disruptions described as a large and worsening supply shock. The IEA estimates potential oil supply shut‑ins near 10 mbpd, about 10% of global supply, with conditions deteriorating further through April.
Ceasefire Risk And Oil Market Uncertainty
It also states that a ceasefire does not mean normal conditions will return quickly. Shipping through Hormuz and energy production are expected to recover slowly, if at all, without durable peace.
The article notes it was created using an Artificial Intelligence tool and reviewed by an editor.
The announced ceasefire appears fragile, which keeps the risk of a major disruption in the Middle East extremely high for oil markets. Given the persistent geopolitical stress, our conviction on the price outlook for the coming months remains low. This uncertainty itself is something traders need to act on.
We are facing a large and worsening potential supply shock. With the IEA estimating that possible supply shut-ins are near 10 million barrels per day, the market is vulnerable to a sharp upward move. Recent reports from the EIA showing U.S. crude inventories falling by 2.5 million barrels last week only emphasize how little buffer the system has right now.
Trading Strategies For Near Term Volatility
This environment suggests that market volatility is being undervalued. In the coming weeks, traders should consider buying call options on benchmarks like Brent and WTI to profit from a potential price spike if the ceasefire fails. The current implied volatility in options contracts does not seem to fully reflect the risk of 10% of global supply being disrupted.
We must remember that a ceasefire does not equal normalization. Looking back at the market turmoil in 2022, we saw how long it took for supply chains to adjust, with prices remaining elevated for many months after the initial shock. Any recovery in shipping through the Strait of Hormuz or in regional energy production will be slow, keeping prices firm.
While our base assumption is for the conflict to end by mid-year, leading to lower oil prices in the second half of 2026, the immediate risk is clearly skewed to the upside. This points toward strategies that capture near-term volatility, such as using shorter-dated options that would expire before the market begins to price in a more durable peace. The current calm in prices could be a temporary opportunity before the market recognizes the full extent of the risk.
